The price of WTI crude oil is down over 2% on an apparent easing of tensions in Syria. It's the second down day in a row for crude after a two-month run that took it from $92 to as high as $112 a barrel last week. A drop would be a boon to the nascent global recovery but Dan Dicker of oilprice.com thinks this dip will be short-lived.
"We've had a rally in oil prices for the past four months," Dicker explains in the attached video. "There are plenty of other geopolitical pressures that were already apparent, particular in Libya where we have a lot of rebels who are controlling a lot of transport facilities and are trying to extort from the government to lease them back. That's 1.2 million real barrels of production that are offline."
He's just getting started. There's also a potential civil war in Iraq which threatens 3.5 million barrels and continuing unrest in Egypt which accounts for more than a million barrels. At roughly a half a billion barrels per day, Syria is relatively small potatoes, accounting for a mere 0.5% of world production. The concern for traders was that a U.S. strike on Syria could fuel unrest elsewhere in the region. Syria's allegiance with Iran adds another wrinkle, bringing into play the straits of Hormuz.
It's safe to assume problems in the Middle East will outlive us all. There's something else behind the gains in oil. Dicker says that hidden driver is the financial desirability of owning oil. With stocks having spent the past few months stuck in neutral and gold still digesting the bubble spike of 2011, institutional investors looking for a hard asset turn to crude. Unlike gold there's a practical application for crude, making it particularly attractive as a way to be involved in the global economy without being exposed to stalled equities or collapsing bonds.
Since the post-2008 plunge in crude there have been a series of higher lows on the price chart, putting in place an uptrend traders have been playing the whole way. Unless that breaks dips are to be bought with lows of the year as a floor.
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