Middle East Tensions may Hold up Crude Oil Prices

A recent poll reveals that, out of 11 survey respondents, 10 foresee that crude oil prices will pick up and trade at $90 a barrel. Meanwhile, a lone respondent expects prices to drop to about $88 a barrel.

Now that a truce has been declared between the Hamas group and Israel, oil traders have turned to monitoring the latest political crisis in Egypt. It seems that the market is now concerned with the crisis and its effect on the transport of crude oil via the Suez Channel and on the oil pipeline traversing the Suez-Mediterranean route.

Sean Hyman, a finance expert as well as editor of an investment newsletter said that, under the present circumstances, he wouldn’t risk trading short on oil. Possible catastrophic events, like a pipeline accident in the region or confrontation between Israel and Iran, could spell disaster for traders who are opting to go short.

Last Monday, the tension in Egypt had somehow fizzled out shortly after Mohamed Mursi agreed to reach a compromise regarding his extended power as Egypt’s new leader.

Mark Pervan, ANZ specialist said that a worsening political discord in Egypt will have an impact on current crude oil prices.

Also on Monday, negotiators from Egypt opened the first round of discussions with Israel and Hamas to discuss the finer points of the recent truce.

The Compass Global Markets of Sydney, Australia reported that prices of crude could slide further to lower than $85 if the break from armed fighting in Gaza is prolonged. The financial services firm indicated, however, that it remains impartial on the near-term crude oil price per barrel as a host of issues are dragging it in different directions.

IG Markets’ Justin Harper disclosed clients who are trading oil are quite bullish at the moment. Close to 88 percent have now taken a more bullish stance on oil compared with last week’s 81 percent. These clients actively trade every day, so the stats are reliable indicators of the market’s perception of the commodity, Harper added.

Meanwhile, China’s economic rebound has emboldened oil traders, according to other specialists.  The country’s HSBC manufacturing PMI reached a high of 50.4 this month, and economist Qu Hongbin said that this proves that China is well on its way to recovery, although he added that there’s still a long road ahead.

By: Chris Termeer