Oil range bound after Iran talks yield no answers

Talk Too Much

Talk is cheap but the decision to continue talking to Iran means oil may get cheaper. That is assuming of course that the Israelis will go along and wait for more discourse. After 10 hours of talk they decided the answer to the Iranian nuclear threat was to talk some more next month.

The Wall Street Journal said that Israel’s Prime Minister Benjamin Netanyahu criticized the outcome as giving Iran more time to continue enriching uranium, the process capable of producing fuel for a nuclear bomb. “My initial impression is that Iran has been given a 'freebie', "Netanyahu said on Sunday. It has got five weeks to continue enrichment without any limitation, any inhibition."

Of course to oil traders that means we are back in to geo-political risk premium confusion. Because the talks did not give us a decisive outcome, it will be hard for oil to take out $100 a barrel on the downside, yet it will also be hard to go above $105.

I get letters! As readers of The Energy Report know, I am a defender of free markets and I will continue to answer the unwarranted attacks on speculators. A viewer of Fox News asked me these questions….  

I wanted to know if you had solid facts for your reasoning based on actual oil utilization and availability. Here are few facts that seemed to be ignored:

 1) During past wars in the Middle East, oil prices in fact dropped.

Well yes, they dropped after they rallied. The market rations supply and once the threat passes, process generally fall. Also in recent wars the Saudis and the US then flooded the market with oil.

2) Oil supplies and availability are at highest levels ever.

True but the confidence in paper money is at a very low level. When the world is on the verge of bankruptcy, the value of paper money is near worthless. Countries across the globe are printing more money and that means it takes more currency to buy oil. Countries across the globe are also hoarding oil supply because they fear war with Iran. Many also prefer to hold hard assets as opposed to paper money. Remember we are going through the greatest economic crisis since the great depression. There is an impact when you try to print your way to prosperity.

3) Ever since speculators became less regulated, prices started to rocket (same with food). Actually, in the 1980s when the NYMEX crude oil contract started trading, we saw oil prices fall. That was the impact after the US lifted price controls. Then we soon had a glut of supply that led to historic low prices in the 1990s. That led to China who started an industrial revolution built on cheap oil whose demand exploded unlike anything the world had ever seen.

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