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Jul 20 2012
Middle East Uprising and Oil Prices

The geopolitical situation that is prevalent around the Middle East region with the increase in the tensions arising out of Syria and Israeli accusations on Iran has put an upward pressure on oil prices. The New York Mercantile Exchange crude oil on Thursday, 19th July rose to $ 92.66 per barrel; a nearly $3 increase which is an all time high since May16. The oil prices since then have been rallying showing sensitivity to different stimuli such as the FOMC meeting minutes that indicated a possible new round of easing, the EIA report that concluded a decrease in the crude oil inventories in the US and an improved global Investor sentiment.  And now with such news of political turmoil across these Middle East nations, crude prices will only go further.

Oil prices always have a strong correlation with the geopolitical factors and looking back at history they have mainly revolved around the Middle East nations who are also the global suppliers. Prices have always spurred a rally whenever a political uprising is seen in such nations. The most recent example is that of the Libyan revolution that saw oil prices reaching more that $120 per gallon. 

Similar situation has returned in the market that could again push up oil prices this summer. Syria’s continuous political uproar and the latest Israeli accusations on Iran for the bombing of the Israeli Tourist Bus in Bulgaria on July 19th have brought new series of dismay in the oil futures. Iran has faced oil sanctions from the European market already and now with these growing tensions, it could not make situations any better for the market.

US gasoline prices have also gone up since end of June with the national average reaching to $3.437 per gallon Thursday. The latest EIA report shows a decrease in the crude oil inventories indicating an increasing demand of oil in the economy. On the other hand ethanol which is made of corn and a gasoline substitute also saw price hikes. This is mainly due to the US drought that has led the prices of corn to go up. Analysts believe that there is nearly a four to five cent rise in the recent oil price due to the rise in ethanol prices.

With such array of information coming from around the globe, oil market is pretty much sure to see a rally in prices in the coming days as well. However if situations get any better in the middle east then only that could have a downward pressure in oil prices and break the bullish trend.

 Note: The views expressed in the blog are the sole opinion of the writer and cannot be deemed responsible for any losses incurred.


Posted by Mex R&D at 20/7/2012 3:07:24 PM

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