Oil retakes $100 after central bank actions

Taking the Embassy by Storm!

Occupy Tehran? Iranian students, incensed with a new round of sanctions, stormed the British Embassy and added a new dynamic to a market already concerned about the rising tensions in the Middle East. The orchestrated take over from the government was a clear violation of international law and shows Iran's utter lack of respect for anyone else in the world. The pillaging of the UK Embassy had to have the support of the government because it is unlikely that without the government looking the other way, rag tag bunch of students would not be able to take over the fortified British compound. Iran, the world's fifth largest oil exporter, was trying to stir domestic public outrage after a vote by Iran's leaders to end diplomatic relations with the UK and expel the British ambassador and the UK slapped sanctions on Iranian banks and their petrochemical companies. Obviously these sanctions have some bite as it raised the acrimony of the Iranian regime. The outcome means that more than likely the US will follow suit and put more pressure on the known terror state as it is clear to everyone that Iran is on track to secure a nuclear weapon after a report from the International Atomic Energy Association.

The likelihood of more sanctions against Iran will tighten supplies of distillates in Europe and will put even more pressure on the world's newest diesel exporter, the US, to keep up with global demand. The United States, Russia, France, Britain and Germany all expressed outrage at the Iranians, yet China remained quiet as it desperately needs diesel supply. They are fearful that if Iranian supply is cut it could lead to shortages in China for the coming winter.

China also is adding to the upside momentum in the market in a macro way as China's central bank said it would cut banks' reserve requirement ratio by 0.5 of a percentage point to help boost liquidity and support the economy amid market turmoil in developed countries. There are worries that China's manufacturing sector is slowing dramatically because of the slowdown of demand in Europe.

These worries, along with continuing improvements in US consumer confidence, are once again fanning the bullish flames in the energy complex. We are seeing the market play out the increased risk and fears in the spread. Once again it looks like the Brent versus West Texas Intermediate spread has bottomed out as increased risks overseas will drive the Brent market. We also see the heating oil versus gasoline spread gain for reasons other than the seasonal excuse that winter is coming.

As I mentioned before and have talked about for some time, the US is becoming a net exporter of gasoline and diesel. In today's Wall Street Journal there is a must read By Liam Pleven and Russell Gold. The Journal points out, "U.S. exports of gasoline, diesel and other oil-based fuels are soaring, putting the nation on track to be a net-exporter of petroleum products in 2011 for the first time in 62 years. A combination of booming demand from emerging markets and faltering domestic activity means the U.S. is exporting more fuel than it imports, upending the historical norm. According to data released by the U.S. Energy Information Administration on Tuesday, the U.S. sent abroad 753.4 million barrels of everything from gasoline to jet fuel in the first nine months of this year, while it imported 689.4 million barrels. That the U.S. is shipping out more fuel than it brings in is significant because the nation has for decades been a voracious energy consumer. It took in huge quantities of not only crude oil from the Middle East but also refined fuels from Europe, Latin America and elsewhere to help run its factories and cars."

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