Ok, I know it was just last Friday when I wrote $100 or Go Bust but because so many oil bulls expressed disbelief that oil could actually stay below $100 a barrel, I should now warn those people that they should stop worrying about the break below $100 a barrel and start worrying about whether $90 a barrel can hold. The West Texas Intermediate oil contract is giving way to a host of global economic worries and the weight of ever mounting supply. Yes, I know last week I wrote the bullish oil price scenarios are giving way to what seems to be ever mounting supply and lowered demand expectations and so we have growing odds of a continuing price collapse, but when you are right you are right. While oil seemed to hold $95 a barrel yesterday, the fundamental outlook continues to look heavier and perhaps even heavier than it did just one week ago.

Not only did we see US oil supply hit the highest level since 1990, we heard from OPEC and the International Energy Agency that oil production is far exceeding demand. According to the IEA OPEC is producing 31.44 million barrels a day led by Saudi Arabia which is pumping out the most oil in about 30 years.

The other factor in oil's big drop is a major unwinding of the Iranian war premium. Not only is the risk of war less likely, the market has already replaced Iran's supply. We have increased US and OPEC production as well as Global Strategic Reserves filled to the brim, so the risk posed by the loss of Iranian oil has been negated. We can add to the mix the UAE's strategic oil pipeline for bypassing the Strait of Hormuz that is complete and we are going to see the reversal of the Seaway Pipeline to get oil out of Cushing, Oklahoma to the rest of the world is another factor that will pressure price.

Even Iraq, in a historic turn of events, is ready to replacer Iran as OPEC's second largest producer. Bloomberg News reported that, Iraq, seeking to more than double oil output by 2015, is poised to overtake Iran as OPEC's second- largest producer by the end of the year as sanctions hobble crude production in its Persian Gulf neighbor. Iraq is producing the most oil since Saddam Hussein seized power in 1979 and is being helped by foreign investors such as Exxon Mobil Corp. and BP Plc that are developing new fields and reworking older deposits. The country produced 3.03 million barrels a day in April, 7.7 percent more than in March, while Iranian production declined to 3.2 million barrels a day, according to an OPEC monthly report yesterday. Iraq's output last exceeded Iran's in 1988, when the countries ended their eight-year war, statistics compiled by BP show.

Bloomberg says that, With rising oil supply from Libya and Saudi Arabia, the recovery of Iraq's biggest foreign currency earner is helping alleviate concern that a European Union embargo on Iranian crude starting July 1 will squeeze global supply. Tensions over Iran's nuclear program and the prospect of curbs on its oil sales pushed Brent crude to a 3 1/2-year high of $128.40 a barrel on March 1. Oil has since retreated to $113.

There is also concern about Europe. France's new leader is talking about policies that will have disastrous consequences for oil demand. While Greece looks like it is going to form a coalition government and the risk of unwinding the bailout deal has receded, the risk of confidence in the world at large is rising. Consider for example the news out last night of the massive unexpected trade loss at JP Morgan. While losses can happen, the increased fear of over regulation and the lack of confidence in banks in general will ignite more caution and increase deflationary fears. Regulation can not take away all risk. That's just a fact of life.

Of course with weak demand for gasoline, my call that $3.00 a gallon gas was more likely than $5.00 a gallon gas that you can find online on MarketWatch Radio is also again looking on target. While gas prices in the big cities are keeping the average up, in some cities in the Midwest gas is close to $3.00.

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