Oil has moved up strongly to almost $100 per barrel. There have been rumors regarding a potential attack on Iran’s nuclear facilities and Israeli President Shimon Peres has even hinted at it.
Natanz, Iran
Recent reports that Iran is getting closer to making a nuclear bomb have prompted pundits to opine that than attack by Israel or the United States to destroy Iran’s nuclear infrastructure is imminent.
Oil prices are very sensitive to rumors of attack on Iran not only because Iran is a major oil producer, but more importantly because of Iran’s ability to block Strait of Hormuz. A large part of the oil from the Middle East to the Western World is shipped through Strait of Hormuz, which is 21 miles across at its narrowest point.
The shipping lane is only two miles wide in each direction with a two-mile buffer zone in between. The narrowness of the lane makes it easy for Iran to block it. Iran is on the recorded stating that if attacked it will block Strait of Hormuz.
At least for the time being, viewing higher oil prices through the prism of armed conflict with Iran is incorrect.
The reason for the rise in oil price is not the geography of Iran but the geography of Cushing, Oklahoma.
Cushing is the oil tank farm capital of the United States. It’s a major hub where various pipelines converge.
Cushing is the price settlement point for West Texas Intermediate Sweet Crude Oil on the New York Mercantile Exchange (NYMEX). NYMEX is now owned by CME Group (CME). This price benchmark is used for oil in the United States.
As the production for Canadian oil sands has increased, Cushing has become a major choke point. Cushing has turned out to be a colossal error in oil infrastructure planning.
Special Offer: Jim Stack had his subscribers in cash and hedged investments before the market crashed in 2008 and he got aggressive again just as the market bottomed. Click here for currently recommended “safety-first” investments in InvesTech Research.
Oil prices in the United States were depressed because of the inventory built up in Cushing. Now the choke point is easing and more oil is moving out of Cushing, but even with this additional supply, crude oil has rebounded from $75 to more than $95 with $100 in sight.
Natanz, Iran
Recent reports that Iran is getting closer to making a nuclear bomb have prompted pundits to opine that than attack by Israel or the United States to destroy Iran’s nuclear infrastructure is imminent.
Oil prices are very sensitive to rumors of attack on Iran not only because Iran is a major oil producer, but more importantly because of Iran’s ability to block Strait of Hormuz. A large part of the oil from the Middle East to the Western World is shipped through Strait of Hormuz, which is 21 miles across at its narrowest point.
The shipping lane is only two miles wide in each direction with a two-mile buffer zone in between. The narrowness of the lane makes it easy for Iran to block it. Iran is on the recorded stating that if attacked it will block Strait of Hormuz.
At least for the time being, viewing higher oil prices through the prism of armed conflict with Iran is incorrect.
The reason for the rise in oil price is not the geography of Iran but the geography of Cushing, Oklahoma.
Cushing is the oil tank farm capital of the United States. It’s a major hub where various pipelines converge.
Cushing is the price settlement point for West Texas Intermediate Sweet Crude Oil on the New York Mercantile Exchange (NYMEX). NYMEX is now owned by CME Group (CME). This price benchmark is used for oil in the United States.
As the production for Canadian oil sands has increased, Cushing has become a major choke point. Cushing has turned out to be a colossal error in oil infrastructure planning.
Special Offer: Jim Stack had his subscribers in cash and hedged investments before the market crashed in 2008 and he got aggressive again just as the market bottomed. Click here for currently recommended “safety-first” investments in InvesTech Research.
Oil prices in the United States were depressed because of the inventory built up in Cushing. Now the choke point is easing and more oil is moving out of Cushing, but even with this additional supply, crude oil has rebounded from $75 to more than $95 with $100 in sight.
