Oil focuses on geopolitical risks as FOMC meets

Oil Weak Ahead of Fed

Oil (NYMEX:CLU13) looks heavy while the stock market is in a Fed induced stupor. A rumor overnight of a blast in the Suez Canal was denied by the Egyptian military yet is a reminder that we have seen the market put in a sizable Egyptian premium.

Yet some of the risks that the oil market has been worried about for years have a chance to recede. Iran's nuclear program has been a factor that has added a large risk premium in oil. While that risk premium has fluctuated from manic to just there because, it seems that years of sanctions are finally forcing change in the Iranian regime. 

In Iran the risk seems to be falling as Reuters reports "Iranian President-elect Hassan Rouhani wanted to signal his determination to rebuild relations with the United States and strike a "grand bargain," he could hardly do better than pick Mohammad Javad Zarif as his foreign minister. Iranian news agencies reported on Monday that Zarif, a former ambassador to the United Nations and Tehran's leading connoisseur of the U.S. political elite, is set to be in the cabinet Rouhani will announce after taking office on Sunday. A source close to Rouhani confirmed Zarif will be nominated as foreign minister.  A fluent English speaker who earned his doctorate at the University of Denver, Zarif has been at the center of several secret negotiations to try to overcome 35 years of estrangement between Washington and Tehran, diplomats said. Zarif's elevation, however, suggests the moderate new president is keen to make another try at breaking the deadlock. "He was always trying to do what was possible to improve relations in a very intelligent, open and clear way," said a senior Western diplomat who had repeated dealings with Zarif. "This is someone who knows the United States very well and with all the frustrations of the past is still someone they know in Washington," he said.”

On top of that, peace talks are beginning between the Israelis and Palestinian. While many feel that these talks are going nowhere, Secretary of State Kerry made it clear that it is better to give it the old college try than the nasty alternative. Kerry named Martin Indyk as lead negotiator for the talks. Kerry hopes that we could at least try to find some reasonable compromise" in the Mideast, and that Indyk is "realistic" about the difficulties facing the Israelis and Palestinians and U.S. negotiators. The Israeli side will be led by chief negotiator Tzipi Livni, a former foreign minister. The Palestinian will be led by chief negotiator Saeb Erekat.

Still with tensions running high in Egypt and Bahrain, the next possible trouble spot, most of the geopolitical risk is impacting Brent crude more so the WTI. That is of course because of the U.S. shale gas and oil revolution. The revolution that OPEC tried to laugh off.

Well known Saudi billionaire Prince Alwaleed bin Talal in a very rare criticism of Saudi Oil Minister Ali al-Naimi said it is time to take the U.S. energy boom seriously. Price Alwaleed has warned that the Saudi economy is way too dependent on oil and is at risk due to rising U.S. energy production. Alwaleed wrote an open letter addressed to Saudi Oil Minister Ali al-Naimi and several other ministers, warning that the U.S. energy boom is for real.  Alwaleed realizes the inability of the Saudis to diversify their economy they are "facing a threat with the continuation of its near-complete reliance on oil, especially as 92% of the budget for this year depends on oil" a dangerous truth.

With recent violence in Bahrain their neighbor where they back the Sunni government, stability is becoming even more questionable. AFP reports Bahrain's King Hamad ordered the government on Monday to implement a parliamentary call for tough measures against what the authorities are calling an upsurge in "terrorism" linked to Shiite-led protests.

The monarch forwarded to the government recommendations adopted on Sunday by parliament, ordering their "quick implementation," the official BNA news agency said. The loyalist-dominated parliament, which is boycotted by the Shiite opposition, gave authorities powers to revoke the citizenship of anyone "recognized as guilty of committing or inciting an act of terrorism."  At an extraordinary session requested by the king during a parliamentary recess, lawmakers also recommended "a ban on gatherings and rallies" in the capital Manama.

It called for emergency law to be declared in the Sunni-ruled Shiite-majority Gulf kingdom if the need arose in the run-up to a major opposition demonstration called for mid-August. Lawmakers urged authorities to prosecute political groups that "incite and support acts of violence and terrorism," as well as those that use social media networks to "spread false information."  Al-Ayam newspaper described the recommendations as "historic" and a reflection of a "national consensus to fight terrorism" in the kingdom.

The Shiite-led opposition on Monday described the language used in the parliamentary debate as a "declaration of war on the people, as well as open threats and insults to beliefs." But the opposition groups also insisted in a statement that the people's actions remain "peaceful," denouncing propaganda to promote a security solution... which violates international conventions."

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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