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Oil Breaks $92. Now What?


Crude is up 18% in the past 20 trading days.

MINYANVILLE ORIGINAL WTI crude oil futures for August (CLQ12.NYM) broke to a high of $92.91 in trading today largely as a response to Iranian saber-rattling in the Middle East. Shooting rockets off and threatening to close the Strait of Hormuz, a transit point for 20% of the world's oil, tends to effect the market price -- and in this case, it looks like the fear premium has been priced in.

Sanctions against Iran are now in their 19th day, coinciding nicely with an 18% uptick in oil over the past 20 trading sessions. Of course, Iran is still trading. You can read Justin Rohrlich's Iran: Except for the Mullahs and Fatwas, They're Just Like Us for more information on how ineffective any sanctions really are and how inventive the Iranians are at dodging them.

"There's a game of 'musical tankers' out on the high seas," said Byron King of the newsletter Resource Hunter. "Iran owns a significant tanker fleet, over 20 large vessels. In recent weeks, the ships acquired new paint jobs and registrations. This is to remain 'legal' to haul oil. On occasion, the Iranian ships turn off their satellite-transponders, so nobody knows where they are. Then the ships pop up hundreds of miles away, hauling oil."

Meanwhile, ongoing concern over conflicts in other areas of the Middle East like Syria is pointing to continuing volatility. "Syria is starting to look like it may just fall apart, and if Syria goes, potential for a regional war goes up quite a bit," Bill O'Grady of Confluence Investment Management told Bloomberg.

Geopolitical risk is back.

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