They talk too much, they worry me to death, they talk too much, forget the nuclear threat. They just talk, talk too much. You talk about weapons that you don't know, you talk about bombs, wherever you go, you just talk, talk, talk, talk too much. Talk is cheap but the decision to continue talking to Iran means oil may get cheaper. That is assuming of course that the Israelis will go along and wait for more discourse. After 10 hours of talk they decided the answer to the Iranian nuclear threat was to talk some more next month.

The Wall Street Journal said that Israel's Prime Minister Benjamin Netanyahu criticized the outcome as giving Iran more time to continue enriching uranium, the process capable of producing fuel for a nuclear bomb. My initial impression is that Iran has been given a 'freebie', Netanyahu said on Sunday. It has got five weeks to continue enrichment without any limitation, any inhibition.
Of course to oil traders that means we are back in to geo-political risk premium confusion. Because the talks did not give us a decisive outcome, it will be hard for oil to take out $100 a barrel on the downside, yet it will also be hard to go above $105.

I get letters! As readers of The Energy Report know, I am a defender of free markets and I will continue to answer the unwarranted attacks on speculators. A viewer of Fox News asked me these questions....
I wanted to know if you had solid facts for your reasoning based on actual oil utilization and availability. Here are few facts that seemed to be ignored:

1) During past wars in the Middle East, oil prices in fact dropped.
Well yes, they dropped after they rallied. The market rations supply and once the threat passes, process generally fall. Also in recent wars the Saudis and the US then flooded the market with oil.

2) Oil supplies and availability are at highest levels ever.
True but the confidence in paper money is at a very low level. When the world is on the verge on bankruptcy the value of paper money is near worthless. Countries across the globe are printing more money and that means it takes more currency to but oil. Countries across the globe are also hoarding oil supply because they fear war with Iran. Many also prefer to hold hard assets as opposed paper money. Remember we are going through the greatest economic crisis since the great depression. There is an impact when you try to print your way to prosperity.

3) Ever since speculators became less regulated, prices started to rocket (same with food). Actually, in the 1980s when the NYMEX crude oil contract started trading, we saw oil prices fall. That was the impact after the US lifted price controls. Then we soon had a glut of supply that led to historic low prices in the 1990s. That led to China who started an industrial revolution built on cheap oil whose demand exploded unlike anything the world had ever seen.

4) Saudi Arabia has said a number of times that they would be happy to supply any oil needed that Iran would not deliver.
Saudi Arabia is the one that has conspired with other countries to manipulate price. So you take their word? The other issue is the quality of Saudi oil. Saudi oil is heavy oil where Iran is lighter. European and Asian countries are hoarding high quality light oil. Even if the Saudis match Iran, barrel for barrel, that is not enough. Most European refineries cannot refine Saudi crude. That is why they are hoarding lighter grades. On top of this, other sources of light crude are compromised. North Sea Crude production has had problems. Plus you have a war in the Sudan and problems in Nigeria. A war in Syria as well.

5) And the one I Iove the most. When Obama was running for president he identified speculation as the source of the problem and said he would fix it. Well we know what really happened! LOL. Speculation is not the problem. Obama has killed the messenger and in doing so he may end up destroying the free market. Government intervention in the market can have unintended consequences. Like in the 1970's when we ended up with gas lines and shortages.

A great disservice is being done to America by those who blame speculators for price movements when they lack the knowledge to grasp the fundamentals of the marketplace. Remember what role the speculators play in a free market. They assume risk and today they are assuming greater risk than perhaps at any time in history. We are contending with actual wars and the threats of new ones springing up. We have countries and financial institutions across the globe that are failing. Central banks around the world are promoting money to stimulate speculation so economic activity does not freeze and we don't slip in to depression. If speculators were activie in the market and assuming riskk, the global economy could collapse.

The Wall street Journal also said that oil came under pressure as the Bank of Korea lowered its 2012 growth and inflation forecasts. Asia's fourth-largest economy will expand 3.5 percent in 2012, compared with the 3.7 percent estimated in December, the central bank said today in a statement.

South Korea's Finance Minister Bahk Jae Wan urged members of the Group of 20 nations in a letter to address the increase in crude prices at their meeting in Washington next week.

New York crude has technical support along its 100-day moving average at around $101.73 a barrel today, according to data compiled by Bloomberg. Buy orders tend to be clustered near chart-support.
This is the week that we should start to see gas supply turn around. Look for crude to fall 1 million barrels. Look For gasoline supply to increase by about 2 million barrels. Distillate supply should increase by one million barrels. Refinery runs should increase by 1.0 percent.

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Phil Flynn
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