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Starting Off With A Bang

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Crude prices are starting the week off with a rally powered by various comments from around the world. Crude prices were up +$2 from Friday's close to $142.30 at 3:30 AM Eastern time. The main news item garnering attention was an Iranian general announcing plans to prepare 320,000 graves for enemy soldiers who attack Iran.

The Iranian foreign minister said on Sunday he did not believe Israel was in a position to attack Iran over its nuclear program but promised devastation if they tried. Iran also made comments about "controls" on the Straits of Hormuz got the most press. Over 40% of the worlds oil flows through that narrow two-mile wide shipping lane and it would be unbelievably easy for Iran to stop it all. They already have missile batteries peppered along the route and they could halt all traffic just by saying they were going to shoot. No tanker driver is going to risk his ship and billion-dollar cargo just to test the Iranian bluff. If Iran says it is closed no oil will flow.

In this week's issue of the New Yorker Seymour Hersh claimed the U.S. was already running covert ops inside Iran and has launched a "significant escalation" of covert spying on their nuclear facilities. Hersh said he based his report on accounts from current and former military, intelligence and congressional sources. The White House declined to comment. Ryan Crocker, U.S. ambassador in Baghad flatly denied that U.S. forces were conducting raids out of Iraq. Hersh claims they are operating out of Afghanistan, which also shares a border with Iran. Hersh claims the U.S. ops are resulting in "a dramatic increase in kinetic events and chaos" in side Iran. He credits the U.S. ops for aiding Kurdish separatists in opposition against the current Iranian administration.

There is a continued train of thought that Bush will orchestrate an attack on Iran before he leaves office. He will not want to leave Iran on the nuclear path as part of his legacy. With time until the election running short that leaves a very small window of opportunity if that is actually going to happen. Should it become more likely in the press you can bet Iran will ratchet up warnings about closing Hormuz. That is the easiest way to get back at the U.S. and other aggressor nations is to cut off the oil and double the prices literally overnight.

There was also word from top Chinese oil giant CNPC they were going to increase imports again in Q3 in order to boost supply to the domestic markets. Apparently the 18% hike in gasoline and diesel prices has not slowed demand. 

This should be an interesting week in the energy markets with rumors of wars and evidence of increased demand. All we need now is a hurricane headed for the gulf and prices would really take off.

Jim Brown

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