Oil caught between Iran and Greece price-drivers

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You are your own judge. The verdict is up to you.

Astrid Alauda

Tuesday was a trading day that can be best categorized as dueling price drivers. The evolving geopolitical situation in the Mideast, especially Iran, provided a bullish overtone while the ongoing saga around Greece was bearish. The market traded part of the day in positive territory and part of the day in negative territory with the bulls edging out the bears by the end of the day...but not by much. As I mentioned a few weeks ago the oil complex is starting to decouple itself from its reliance on the direction of the EUR/USD and global equity markets and moving more based on geopolitics and fundamentals. This pattern is continuing to evolve.

Another bombing — this time in Bangkok by two Iranians — was viewed by the Israelis as yet another attempt by Iran to target Israelis. As expected the Iranians have denied any involvement on their part. The tensions between Iran and Israel, and Iran and the west in general, are rising on an almost daily basis. Yesterday a US aircraft carrier sailed through the Straits of Hormuz with Iranian gunboats shadowing it. In addition the US and Europe are now considering evicting Iran from SWIFT...an independent financial clearinghouse that is critical to all of Iran's oil sales (most all financial transaction move through SWIFT). This unprecedented act is likely to have an almost immediate impact on Iran's exports (at least until something else can be worked out by Iran and its remaining counterparties). The objective of this new approach is to show that something is working immediately as most of the sanctions put in place to date are not showing the immediate results that may be needed to slow the Israelis from attacking Iran. The talk around the media is that Israel and the US may make a decision before the summer on military action against Iran. Iran remains the single biggest risk to the flow of oil and thus will continue to be responsible for the risk premium that is embedded and growing in the price of oil.

On the Greek front, the deal is still not a final deal as the meeting of the EU Finance Ministers was postponed and is now a conference call that is to take place on Wednesday as the EU awaits all of the final documents required. On a more positive note, Greece has now agreed to provide written austerity promises to meet a condition of the bailout program. As I have been saying, and I will say again, the Greek economy is a mess and this deal is not going to solve the problems. It is simply going to postpone it for a period of time. It will resurface as Greece will remain very susceptible to an economic meltdown and default irrespective of getting this round of bailout funds.

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