Oil prices defy supply and go on a technical buying binge. Inspired by a weakening dollar and hopes that China will keep supporting all commodities, the bulls have no fear of ample supply. Oh sure oil prices actually fell in the month of July but the way the market rebounded it sure did not feel like it. In recent days, oil has rallied on signs of recovery. It has rallied as the cash for clunkers program has run out of money. Maybe it is bullish if the clunkers are on the road. But it has really rallied in wild fashion indicating that a major oil move is about to get under way.
Now even though I believe that we are setting up for a correction of epic proportions, we still have to respect the markets movement and its blind ambition. If oil closes above $72 we might have to admit that we were premature calling for a high for the year. Yet even if oil exceeds that level, the drop in price will be much stronger at a later time.
The Supreme Leader in Iran has all but put his rubber stamp of approval on President Ahamadineajad election and it looks like all is happy and well for his inauguration. Even the reformists saw the light after spending some time in the Iranian jails. AFP reports that, "Reformists backed down from their allegations of massive fraud in the June presidential election at the start of a trial on Saturday of about 100 Iranians accused of rioting. Leading reformist Mohammad Ali Abtahi told the revolutionary court in Tehran that he should not have taken part in protests as there had not been any fraud in the June 12 poll, which returned Mahmoud Ahmadinejad to office for another four years", the Fars news agency reported. The back down by Abtahi, a close aide of reformist ex-president Mohammad Khatami, deals a blow to the opposition movement which claims that Ahmadinejad's re-election was due to massive rigging of votes."I say to all my friends and all friends who hear us, that the issue of fraud in Iran was a lie and was brought up to create riots so Iran becomes like Afghanistan and Iraq and suffers damage and hardship," Abtahi told the court. Oh yes, that's the ticket! That was the plan all along.
Of course the Obama administration's plans with Iran may be changing. They may hit Iran where it hurts and that is in the gas tank. Iran produces a lot of oil but does not have the ability to refine it and according to the New York Times, " The Obama administration is talking with allies and Congress about the possibility of imposing an extreme economic sanction against Iran if it fails to respond to President Obama's offer to negotiate on its nuclear program: cutting off the country's imports of gasoline and other refined oil products. The option of acting against companies around the world that supply Iran with 40 percent of its gasoline has been broached with European allies and Israel, officials from those countries said. Legislation that would give Mr. Obama that authority already has 71 sponsors in the Senate and similar legislation is expected to sail through the House. The New York Times says that, "In a visit to Israel last week, Mr. Obama's national security adviser, James Jones mentioned the prospect to Israeli officials. The White House refused Sunday to confirm or deny the contents of Mr. Jones's discussions. But other administration officials said that they believed his goal was to reinforce Mr. Obama's argument that the Israeli government should stop dropping hints about conducting a military attack against Iran's nuclear facilities if no progress is made this year, and to give the administration time to impose what Secretary of State Hillary Rodham Clinton "crippling sanctions" that might force Iran to negotiate."
Republished with permission from Alaron's Energy Report Daily.