Oil inventories stay in back seat, Europe and Iran driving

On top of all of the economic issues around the world the geopolitical risk in and around the greater Middle East is continuing to widen as I have been discussing for the last several weeks. At the heart of the problem is the evolving nuclear situation in Iran and the ramifications of many direct and indirect actions slowly taking place by the west. A new round of sanctions by the US is moving forward that are designed to make it more difficult for Iran to receive payment on its crude oil sales. China, Japan and India along with the EU region are the main lifters of Iranian crude oil. In addition to the US sanctions the EU Foreign Ministers are meeting tomorrow to discuss the issue of Europe embargoing Iran crude oil from the region. Whether or not they will do it remains to be seen but if they do impose such an embargo I wholly expect the Saudi's to step up and replace those barrels for all of the reasons I have been discussing in the newsletter. I do not expect a major sustainable price spike in the event that the Europeans embargo Iran as Saudi oil will offset and solve the logistics. However, if the Saudi's do not step up to the table (I think a low probability) then of course we will see a price spike of some magnitude.

Even with protesters moving into the UK Embassy yesterday oil prices have been relatively calm with only a minimal risk premium currently embedded in the price. The fact that Iran and Syria have moved further into the forefront of events that could result in a potential supply disruption they will at a minimum keep a floor on any major price selling at this time. Also with the fragility of the global economy...especially Europe... along with the growing geopolitical risk in the Middle East, the Dec. 14 OPEC meeting is going to be very interesting to say the least. We will be talking more about this meeting as various sides start to send out their views in the media airwaves...those calling for a cut back to pre-Libyan civil war levels and those suggesting no change. I am of the view that there will be no change at this point in time especially with Brent still well over $100/bbl and WTI within shouting distance of a triple digit price level.

The API data was mixed and not in sync with most of the projections...including my projections. The API reported a large build in crude oil stocks versus an expectation for a modest build in crude oil inventories of about 3.4 million barrels as crude oil imports increased while refinery run rates also increased by 0.5%. The API reported a small draw in gasoline stocks versus projections for a modest build and a surprise build in distillate fuel inventories versus an expectation for a draw.

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