This is from a kitco commentary and i find the reference to those doing business in Iran very interesting.
Unwinding the $15 per barrel Iranian ‘War premium”
The most influential driver behind the CRB’s plunge since August 8th however, was the unwinding of the Iranian “war premium” which had inflated the price of crude oil by as much as $15 per barrel this year. Iranian negotiators have skillfully split the British, French and the German coalition away from the Bush administration’s hard-line stance for economic sanctions against Iran.
Iran’s rulers have always relied on the Russian and Chinese veto to any economic sanctions, but now there are signs the Europeans are also seeking a way out, once the moment of truth had finally arrived. On Sept 13th, British Foreign office minister Kim Howells waved the white flag, “I can’t see a military way through this, and I’m not sure that even there’s an easy way for the UN to impose sanctions," he told parliament’s Foreign Affairs Committee.
Economic sanctions against Iran would jeopardize more than 10,000 jobs, the German Chamber of Commerce said on Sept 1st. “Economic sanctions against Iran would solve none of the political problems. But the German economy would be hard hit in an important growing market.” France’s oil giant Total is interested in a 10-15% stake in Iran’s Azadegan, seen as one of the largest unexploited oilfields in the world, said head of exploration Christophe de Margerie on Sept 12th.
On Sept 18th, Norwegian energy and aluminum giant Norsk Hydro, signed an oil exploration deal with the National Iranian Oil Company for the Khorramabad block in southwestern Iran. “If exploration proves to be successful, the period of the agreement will be 25 years,” Hydro said.
Iran’s chief nuclear negotiator Ali Larijani reportedly offered a 2-month suspension of Tehran’s nuclear enrichment program in talks with EU foreign policy chief Javier Solana, which sent crude oil plunging below $66 per barrel. Still, there are questions of whether or not Iran’s internal debate is over, and if the concession by Larijani is fully backed by the Ayatollah Khameinei and president Amadinejad in Tehran.
Without the imposition of UN sanctions or the threat of military action against Iran, crude oil succumbed to the laws of supply and demand. US stockpiles of crude oil were 327.7 million barrels last week, or 18% higher from two years ago, when crude oil was trading at $45 per barrel. Unleaded gasoline prices tumbled 65 cents a gallon since August 1st, and boosted US President George Bush’s approval ratings by 3% to 41% last week, with seven weeks left before mid-term US elections in Congress.
OPEC, which supplies 40% of the world’s oil, has been pumping 28 million barrels per day (bpd), since November 2004, when crude oil first touched a record $50 per barrel, but was unable to stop the surge in crude oil to a record $78.40 /bl in July 2006. But with a bearish market mood and unwinding of the Iranian “war premium”, crude oil traders seized upon OPEC’s Sept 11th pledge to leave its output unchanged at 28 mil bpd, and dumped oil to as low as $62 per barrel on Sept 15th.
Crude oil traders are beginning to view the Bush team as a paper tiger in dealing with Iran. Other traders think the gloves will come off after the US Congressional elections on November 7th, when whispers of a US military adventure could grow louder. In any case, China’s crude oil imports rebounded 15% to 11.8 million tons in August, which could put a floor under the market at $60 /barrel.
UCL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
