Last time we had a Libyan peace proposal it came from Hugo Chavez and as laughable as it all seemed, the market ate it up and oil dropped. Now we have a groups of African leaders with South Africa's Jacob Zuma having said Gadhafi has accepted the preliminary ceasefire/road map for peace proposal.
Given oil dropped on a ridiculous Chavez proposal, it would seem reasonable (and oil is in need of a breather) that this may pull oil back a bit. If this were all that was on the table, the only question would be whether this would be a consolidation or under the circumstances a more vicious pullback to shake out as many traders as possible.
However, there's never a vacuum or a singular event defining the day ever since 2011 started.
We have an intensifying brutal crackdown in Syria, conflict between Israel and militants in Gaza, the much anticipated and predicted turn of the Egyptian populace against the Egyptian military who has been running affairs since Mubarak stepped down (more on that in a minute), the Gulf States demanding that Saleh step down from power in Yemen, of course the Saudi nightmare of Bahrain continues, and interestingly the Iraqi security forces cracking down and killing Iranians who are against the current Iranian regime and live in a camp in Iraq. Iraqi security forces ran them over using Humvees, fired rifles and killed at least 25 with over 300 injured.
It would seem strange that Iran has been demanding that the Iraqi government shut down the camp, most of us remember a 10 year war between Iran and Iraq and wouldn't think at first glance that the Iraqis would respond to such a request, but this is the third time the Iraqis have attacked the camp since it was handed over to the Iraqis by the American military.
It's important to understand that the conflict between Iran and Iraq had many facets, but the most fundamental was a Sunni led Iraq fighting a Shiite led Iran, Iraq is no longer Sunni led. The Iranians have been making inroads into Iraqi politics for quite some time-remember Muqtada Al Sadr. In effect, Iran has widened it's sphere of influence to include Iraq and the two are closer then they have been in decades, you might even call them allies in a sense.
As for Egypt, Tahir Square is back in the headlines and not surprisingly (there have been many posts suggesting that this was coming). The seeming overthrow of Mubarak was not at the hands of the people, this is important to remember. For Egypt's population, the uprising is scope and size wouldn't truly be called popular and it certainly didn't displace Mubarak. What did displace Mubarak was the Military who has been running the show in Egypt since Nasser, choosing the leaders which have all come from the military. Mubarak double crossed them and tried to set up his son for succession, this irritated the military long before Tunisia started. The uprising was simply cover for the military to do what it as going to do one way or another.
If the Egyptian people think that a democratically elected leader will be chosen, say El Baraedei , they ought to think again. The military has controlled that country for decades and kicked Mubarak out for challenging their control, they aren't about to roll over and allow the people to chose the next leader and the Egyptians are starting to come to terms with this.
Still the question is will Libya over-ride everything else temporarily and see oil fall for a bit, I think it's likely. The question will be how deep the correction will be, how forcefully traders will be shaken out.
For our members trading USO, this is what you've been waiting for. We'll keep an eye on the situation and likely find an excellent entry point with low risk and very high probabilities. My longer term view on oil remains extremely bullish for the foreseeable future, however, I also think oil is approaching its last Hurrah and that is part of the reason I think we will see prices reach obscene levels this year with MENA providing the backdrop.
I'll have more analysis on USO as the situation unfolds. The one thing that could derail a pullback in oil is the Israeli conflict, oil has responded more to Israel then almost any other event in MENA.
5 years ago
