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U.S., Iraq, Iran & Nigeria

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U.S., Iraq, Iran & Nigeria

It was a record day for oil prices with a spike to $120.36 and a close at a new record at $120. The momentum traders were piling back into the trade after a $10 drop last week. Long interest dropped -24% for the week ended on Tuesday April 29th. Short interest spiked substantially as prices fell towards $110 by midweek. All of that was reversed in only two days of trading as news from around the world had nervous traders and momentum bulls producing a monster short squeeze.

The spike in prices was aided by the FOMC statement last Wednesday. Fears of a serious recession in the U.S. were calmed and analysts are starting to talk about a quick recovery. A fast recovery would mean a sharp rebound in demand for oil products.

The dollar lost some of its gains from last week with a half percent drop on Monday. That brought another round of week dollar, high oil comments from the various newscasters.

In Iraq Kurdish rebels warned they could launch suicide attacks against American interests to punish the U.S. for sharing intelligence with Turkey to aid them in bombing the rebel positions inside Iraq. There were fears the rebels could attack the pipeline moving across their territory in retaliation for the raids.

Shell said MEND attackers hit another oil facility in Southern Nigeria and some additional production had to be shutdown. Shell should just about be to the point where it shuts everything down and leaves the country until the rebel group either gets its demands met or fades away with nothing to attack.

Iran's Supreme Leader Ayatollah Ali Khamenei said his country would never bend to international pressure and give up its nuclear program. This came after the U.N. group trying to craft an agreement sent Iran their latest proposal. Increased tensions over Iran are always good for a spike in oil prices.

Israeli Transportation Minister Shaul Mofaz said a recent military intelligence briefing warned that the previous target date for Iran to go nuclear in 2010 was too far off and they could have the capability to make weapons within months. "Israel will not tolerate a nuclear Iran and I would like to believe the rest of the world will not allow it to happen," Mofaz said in an interview. Photos taken during a recent visit by Iranian President Mahmoud Ahmadinejad to Natanz were released to the world press by Iran. They show the newly installed IR-2 model centrifuge to be ready for testing. Israel will not allow Iran to go nuclear. I am sure they have warned the U.S. and others that the U.N. needs to act, militarily if needed, in order to keep Israel from acting on their own. Having the U.N. take action through the U.S. would be far less of a problem than having Israel, a Jewish nation attack an Arab nation.  That could bring reprisals from other Arab nations upon Israel.

Iran has also doubled up on floating oil storage. They currently have 10 VLCC tankers moored in the Persian Gulf with approximately 20 million barrels of crude. Iran's crude is high in sulphur and only a few refineries can process it. Those refineries are now in a maintenance cycle and Iran has nowhere to move its crude. With Iran contracting so many tankers just to load and wait the price for available tanker rental has more than doubled in the past three weeks. This is also pushing the price of oil higher since there is a shortage of tankers to transport to places in need.

When traders load up on shorts as we saw last week it does not take much to create a squeeze. Oil is probably the hardest commodity to short because of the thousands of routine daily events that could turn into a problem. The squeeze over the last two days is a prime example.

Jim Brown

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