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The Future of Oil Prices

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Friday, August 11, 2006

All signs that we are receiving from all over the world since Aug 2005, the bloody hurricanes season in the US, all signs are telling clearly one message, that there is enough oil supply for the energy addicted countries, and this is valid so far, and it will be valid for several years, as we don't see any shortage in the energy supplies anywhere in the world considering the high growth we've seen in the most oil addicted countries like China and India.

No doubt that the world's oil demand is increasing noticeably, and no one can deny it, but what I want to explain here, that we are still in the area where the supply can meets this increasing demand, remembering that the growth that we were seeing in some countries, is not going to sustain its speed in the long term nor the short term.

So, someone could ask why are these high oil prices, and why everyone is talking energy?

Actually the answer is political more than economical, it's all about political tensions in some top OPEC countries.

Iran, will be the keyword when you talk oil prices in the next few months, and more precisely in the few upcoming weeks, we could see unreasonable oil prices, hitting $100/Barrel or more.

Iran on top of 132 billion barrels as an estimated reserve, or the second largest oil reserve after Saudi Arabia and 4.1 million barrels as a daily production, Iran is threatening the world by cutting off its oil if the international community, or in the other words, the UN security council, agreed on any sort of sanctions against Iran due to its nuclear activities.

The Security council have given Iran 31 Aug as a deadline to stop enrichment, otherwise they will go for sanctions. On the other hand, Iran said that it will reply for the incentives package offered by western countries on 22 Aug.

Iran is mad to get into this nuclear club, of course they're talking about peaceful enrichment, which no one believes it. Iran most likely will reply with NO on 22 Aug, and we will see oil prices skyrocket.

Already, one of the smartest nations on the earth, Japan, it had stopped its oil imports from Iran months ago, preparing itself for the cut off before it happens, where India and Shell are still the biggest clients for the Iranian oil.

What will happen the day after closing Iran nuclear case for good ?

This is something is not going to happen soon, and we will pass painful times before we see this issue closed, but once it is closed, we will abslutely see a bloody crash in oil prices, the final target for this crash might be in range $40/Barrel.

As an clear example clarifying that the current prices are political more than economical, Oil lost $3-$4 a barrel immediately after announcing a ceasefire in Lebanon!
Can you imagine what will happen to the prices in case we get Iranian nuclear case closed forever!?


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