The oil markets are rallying on the possibility of a deal regarding the fiscal cliff and the possibility of no deal between Israel and Hamas. You can try to pick which one is the big deal of the day or you can trade for the box where lovely Carol Merrill is standing or you can look at the chart and see that we may finally be putting in that bottom on crude. The bottom probably has more to do with the possibility that the US can come up with a deal to avoid going over the fiscal cliff than the possibility of a war that no one seems to really want but may not be avoided.

Crude oil likes it is finally going to make up its mind. Finally almost on seasonal cue oil looks like it is ready to go up. As Israeli forces amass near the Gaza strip the market is wondering if there will be a way out of this mess and no win situation. January Brent Crude filled the gap left by the December expiration reflecting the on-going risk factors. The AP reported that President Obama defended Israel’s airstrikes on the Gaza Strip. But he warned that the escalating the offensive with Israeli ground troops could deepen the death toll and undermine any hope of a peace process with the Palestinians.

Egypt may be an important player to avoid a wider conflict. The AP reported that Egyptian President Mohamed Morsi, a former leader of the Muslim Brotherhood, has condemned Israel’s offensive in the Gaza Strip in recent days and has sent high-level delegations in support of Hamas, the Brotherhood-aligned Islamist group that rules Gaza and that Israel considers a terrorist organization. But Morsi has sought peace, not war, and few in Cairo interviewed Sunday seemed to think it should be any different.

But Morsi can help people in Gaza through aid or money. We don’t want to be involved in a war,” Mohammed said. “Egypt is not stable economically.” The Egyptian government has been walking a fine line between giving as much support as possible to Hamas and Gaza without violating a 1979 peace treaty with Israel. The deal strictly limits Egypt’s military presence in the Sinai Peninsula, which borders the Gaza Strip and Israel. Many Egyptians resented Mubarak for what they saw as an overly subservient attitude toward the neighboring country. During Israel’s three-week military campaign against Gaza in 2008-2009, Mubarak was seen as acquiescing to it.

This time around, Morsi has recalled Egypt’s ambassador in Tel Aviv and sent his prime minister to visit Hamas’s offices in Gaza City, which were subsequently destroyed in an Israeli airstrike. He has been trying to broker a cease-fire and will host U.N. Secretary General Ban Ki-moon in Cairo on Monday. Also Monday, Mohamed Saad Katatny, the head of the Muslim Brotherhood’s political wing, will visit Gaza. But Morsi has stopped well short of taking an aggressive military stance against Israel. Actions have been symbolic rather than explicit. On Sunday, the administrator of his Facebook page posted a photograph of him meeting with Lt. Gen. Reda Mahmoud Hafez, the Egyptian minister of state for military production, and another of him meeting with Ramadan Abdullah Shallah, the head of the Gaza-based Islamic Jihad movement, and Khaled ­Meshal, the leader of Hamas. When it comes to the Fiscal cliff it seems we are rallying again on Hopium! A term that I was credited with creating but was really created by John Kass of the Tribune and fed back to me by a client but is the perfect word that explains today’s rally. Gosh. I feel we are getting more like Europe everyday!   President Obama and Speaker John Boehner is getting us giddy with optimism. The Can is getting ready to be kicked!

Dow Jones is reporting that the “International Energy Agency said it had serious concerns about Australia's failure to meet the group's minimum emergency stockpiles commitments and called on the government to take urgent measures to boost its oil inventories. "While Australia has been working with the IEA to address its stockholding obligation, the review strongly urges the government to take immediate action to become fully and systematically compliant with its stockholding commitment," the IEA said in a report.” Come on Australia! Pony up.

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Phil Flynn

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