Tags: Ilczyszyn | Middle | East | oil

iiTrader’s Ilczyszyn: Middle East Unrest Is Overhyped, Sell Oil Now

Friday, 23 Nov 2012 12:24 PM

Oil prices have shot up recently on fears that escalating violence in the Middle East could morph into a regional war, though don’t expect crude to continue rallying too much said Rich Ilczyszyn, CEO and founder of iiTRADER.com, a trading consultancy and technology services provider.

Most investors have already priced in the likelihood that conflicts between Israel and Hamas militants could escalate into a regional military campaign involving Iran and other countries.

Iran has repeatedly said in the past it will close the Strait of Hormuz, a narrow waterway connecting oil-rich Persian Gulf countries with the rest of the world, should the West and Israel attack the country for its nuclear ambitions.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

“Let’s look at the broader situation for oil, however. The oil market as a whole is well-stocked. In fact, here in the U.S., stockpiles are at four-month highs. And demand for oil in Europe, Asia and the U.S. is relatively weak,” Ilczyszyn wrote in a CNBC column.

Iran, meanwhile, cannot afford to close off the Strait of Hormuz and deny itself of petrodollars, so any military campaign would be short-lived

“So this is really about the possibility that we will see a closing of the Strait of Hormuz if Iran gets involved. Who would lose the most in that scenario? The producers of oil: Iran and Saudi Arabia,” Ilczyszyn wrote.

“Remember, most of the Middle East counts on the revenue from shipments of oil. Iran is in no position to cut that revenue, given that the nation is already reeling from runaway inflation, as well as internal political pressures. Unfortunately, this is simply politics, Middle East style.”

Meanwhile, a cease-fire is under way between Israel and Hamas, and should lasting peace ensue for now, oil prices could fall.

“[W]orries about the Middle East are pushing the price of crude up by about $10 a barrel,” Ilczyszyn said.

“We could cut that risk premium in half, and drop another 6 percent, if an Israel-Gaza deal is done.”

Market participants are already breathing a sigh of relief now that a cease-fire is under way.

“Crude will probably close down on the day as there are no new catalysts and the apparent calming of the situation in Gaza,” Michael Hewson, a London-based market analyst at CMC Markets, told Bloomberg.

“It’s a good day to grab a cup of coffee and kick the feet up.”

Other market observers agree that oil prices are facing downward pressure, as suppliers are pumping more and more crude out of the ground while the world demands less due to a cooling global economy.

“The global market is well supplied,” said Chakib Khelil, a former Algerian energy minister who was also president of OPEC, The New York Times reported.

“The stocks are pretty good, and the Gulf countries and Saudi Arabia are sustaining supplies while the weak economic situation in Europe is softening demand.”

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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