2nd October - Oil again!
02 October 2012
FUNDAMENTALS:
The fighting in Syria rages on and the western powers; the US, UK and France continue to condemn the violence the regime there is inflicting on its own people just so that one man can hold on to power at any cost.
And although China and Russia are frustrating attempts at the UN to have the Assad regime condemned and threatened with serious consequences, the rebel fighters in Syria that seek to oust the dictator and build a better country continue the fight.
With Syria possessing a large arsenal of chemical weapons, there is a real concern among the western powers that the regime might be tempted to use them on its own people in a final act of desperation, the US has issued a strong warning against this indicating that such an event could prompt a military intervention. Russia, a long standing ally of Syria has strongly warned against such a move, raising the temperature in what is a brutal civil war.
Elsewhere in the Middle East, Israel continues to warn about the risks of a nuclear armed Iran, claiming that Iran may be only 6 or 7 months away from crossing the threshold of becoming a nuclear capable state.
Israel has sought to push the US into making an explicit threat of military intervention should Iran fail to stop its weapons research and begin serious negotiations, but the US is in no hurry to become tied up in what would be another long and bloody conflict.
Frustrated by her closest ally’s stance Israel is issuing its own barely veiled threats of taking unilateral military action herself..
Ordinarily this combination of geopolitical tension would be enough to keep oil near its highs, if not seeing the oil price embarked on a solid rally, but not this time.
Instead the oil price looks highly vulnerable to a sell off. The dynamics that are currently driving this market are economic fundamentals. Where ever one looks around the world the major economies are struggling.
In China the economy is cooling, just as a new group of leaders are about to take control of the world’s second largest economy.
In the Euro zone the economy there is dogged by the long running debt crisis and is in recession.
In Japan the economy is weakening, prompting the Bank of Japan to announce what has been dubbed QE8.
In the US the Fed has belatedly woken up to the fact that the US economy is slowing and that persistently high unemployment is acting as a serious drag, prompting policy makers to launch QE3.
In the UK the economy is in recession and the coalition governments flagship policy of reducing the fiscal deficit and reducing public debt is in danger of blowing off course.
The significance of this economic weakness was not lost on Saudi Arabia as she recently offered to increase her oil output.
In a nut shell, the global economy is weakening, global energy demand will weaken as a result and the oil price must sure trade lower.
Next story:
04th Oct - CRB Index Pauses After Bull Break 
Previous story:
27th Sep - USD/CAD Slide Reaches Lower Support