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World price of oil set to rise with Saudi summer oil burn, Iran oil embargo, and Euro debt bailout
July 1 Saudi Arabia set to reduce oil exports by 700,000 barrels per day, as domestic utilities consume oil for summer use. Iran set to reduce oil exports by 400,000 barrels per day from oil embargo July 1. Surplus oil could reverse to negative.
By: "Tea Party Culture War: A clash of worldviews"
King Abdullah has reportedly assured President Obama, Saudi Arabia will provide swing production to replace lost crude during the crude oil embargo of Iran. Slowing world demand and increased production in Saudi Arabia, Iraq, and North America have resulted in in a glut of oil. Concern over the Greek exit from the Euro and other debt-ridden European countries such as Spain and Italy, have caused the dollar to strengthen against the Euro and the price of crude oil to drop.
During the June 28 & 29 European Summit, Italian Prime Minister Mario Monti has proposed a temporary rescue fund for the Euro area to start buying government bonds in order to reduce the interest rates of Spain and Italy. While many experts believe the Euro is unsustainable, and will eventually divide between the core northern European countries and the southern peripheral nations, a proposed 750 billion euro bailout stability facility will most likely offset hedge fund short selling of Euro sovereign debt, and cause a temporary rebound in the Euro.
The Reuters news agency has unconfirmed reports that Iran has already lost approximately 600,000 barrels of oil exports per day due ahead of the pending oil embargo. Some analyst suggest Iran could lose another 400,000 barrels a day of exports after July 1 embargo. Iran may lose more exports than expected as the European financial industry refuse to insure Iran tankers and refuse to transfer funds from sales of Iran exports. In addition Saudi Arabia will increase its consumption of oil by approximately 700,000 barrels per day, in the summer months starting in July, as domestic utilities furnish electricity to run air conditioners.
The Iran embargo and the normal Saudi summer oil burn are expected to remove 1.1 million barrels of crude oil from the world market. This is expected to reverse the world oil surplus to a negative. With a possible stabilization in European debt crisis, and a failure in the Iran nuclear negotiations in July, Goldman Sachs oil analysts believe the overdone sell- off in crude oil has created the potential of a strong rally, once fundamentals reassert themselves and hedge funds re-enter the market. If Iran breaks off negotiations in regards to its uranium enrichment, an increased threat of an Israeli pre-emptive attack on Iran’s nuclear facilities, will cause a return in the geo-political risk premium in crude oil prices.
Israeli Prime Minister, Benjamin Netanyahu, purportedly agreed to postpone an attack on Iran in exchange for air refueling capacity and additional bunker buster bombs. The U.S. House of Representatives passed the U.S. Israel security cooperation legislation to provide Israel military needs to attack Iran’s nuclear facilities. On June 20 the U.S. Senate Foreign Relations Committee unanimously approved security cooperation with Israel. The senate legislation was authored by Barbara Boxer and Johnny Isakson with 62 co-sponsors. When approved by both the House and the Senate, and signed by President Obama, the 'United States-Israel Enhanced Security Cooperation Act of 2012' will be become law. Many believe Israel will attack Iran in September prior to the November elections, if Iran does not stop enriching uranium and placing centrifuges underground. War in the Middle East will cause crude oil prices to spike.
It appears world oil prices are oversold and close to a bottom. A price reversal will squeeze short sellers and cause oil to rally.
Written by Dr. Stephen Johnston, author of “Tea Party Culture War: A clash of worldveiws.”
For more information on the oil market, and conditions in the Middle East go to: "Tea Party Culture War.com."
For media interviews contact Dr. Stephen Johnston at: 1 (541) 469-2115.