Just as expected - Iran crisis is calming down, but oil price is still loving up :)

March 30th the crude oil price (WTI) was $103,02 per barrel. April 27th the price was $104,93 per barrel. Why comparing these 2 dates is interesting? The answer is in Iran nuclear crisis that is blamed as main reason for pumping up the oil prices. On April 14h in Istanbul (Turkey) negotiations were hold between Western countries and Iran. Both sides said the talks were "constructive" and optimism appeared on markets. The economic sanctions plans were to be rethought and the risk of war went down.

So if Iran was the main reason of skyrocketing oil prices, after these negotiations the prices should go down and pump Obama's hopes for re-election up. But as we see, this did not happen. Current oil price is even a little higher than the price before Istanbul talks (when the risk of war was increasing with every passed day).

So who is to blame now? A culprit must be found as with closing summer, the oil prices seasonally go up. And if they reach $120 per barrel (WTI), then the society and politics will be in serious trouble.
In fact this situation was expected and is much simpler than it looks. Iran is just a trigger and not the main reason for high oil prices. A trigger combined with real reason means movement. A trigger without a reason means nothing. So a trigger for prices to go down (Istanbul) without a general downside pressure will not move the prices down.

The real reason of rising prices is the money-print. It is constantly continuing, although Bernanke and some other officials are trying to persuade us it is stopped. Periodical verbal attacks, focused on QE3 - Yes or No, does not change the real situation with the main money-print mechanism - low interest rates. That is the main technology of flooding the markets with money. FED is lending at low interest to banks and they are pouring this money to markets by buying government bonds or other assets. This system is not dependent on FED meetings and publishing protocols from them. This system is just going on.

The real stop of money-print will be raising the interest rates. But this is not planned until late 2014. Even then it is not sure. And even then it is not sure how much eventually the interests will rise. Obviously a symbolic rise of 0,5-1% will mean nothing. Interest rates of at least 5-10% can influence the markets after so long money-print period before that.

So while the money-print is active there will be a constant pressure up on oil prices. Solving the Iran crisis just removes one possible trigger of starting the rally up. But with fundamentals pressing up, finding another trigger is easy. Everything can be a trigger, even paradox triggers are possible (such that is expected to press the prices down, but instead are pressing up).

The short and mid term prognosis on oil is bullish. No factors to lower the price. In fact most of the world (2/3) is paying already about $120 per barrel as this is the price for Brent Crude oil.

So if the processes continue this way it is absolutely real in USA we see $5 or $6 per gallon in summer.

Dobri
April 29th 2012

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