WTI crude oil prices continue to trade flat as investors wait to
see if Spain will formally request a bailout and initiate a
European Central Bank bond-buying program.
[caption id="attachment_63528" align="alignright" width="300"
caption="Oil prices love conflict"]
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Speculation of a Spanish line of credit has mounted after two
senior German lawmakers tipped their hand that they would support a
Spanish application for a precautionary line of credit through the
European Stability Mechanism.
However, Spanish government officials announced if they were to
obtain a line of credit it is likely they would hold onto to it
rather than actually using it and wait for borrowing costs fall
instead.
Crude oil prices have been consolidating over the last several
sessions, waiting to see if Spanish government officials do
formally request a bailout.
Spain is now trying to finagle a precautionary line of credit to
avoid certain austerity budget concerns that would come with a full
blown bailout, which of course will comes with many strings. Spain
is trying to have its cake and eat it at the same time in this
move, and it could backfire.
Energy traders will also be keeping an eye on the two day
European Union policymakers' summit in Brussels this Thursday, to
discuss the next steps in Greece's fiscal recovery.
Tomorrow oil traders will get another look at crude oil
inventories due out a 10:30 a.m. EDT. The results allow market
participants to judge economic strength, with crude oil thought of
as a growth commodity.
On the flip side, crude oil prices are currently being supported
by U.S. and European sanctions on Iranian energy exports, European
Union officials recently tightened sanctions on Iran. Reports have
been surfacing that Iran has plans to dump crude oil into the
Strait of Hormuz.
Adding to the mix are growing tensions between Syria and Turkey,
combined with how much more support Iran will grant the Syrian
administration in its civil war, all of which is creating
additional instability.
Concern is warranted given roughly 36% of the global production
occurs in the Middle East and North Africa, which holds 52% of the
world's proven reserves according to 2011 Department of Energy
data.
Bottom line
: Right now Spain and the euro zone are keeping oil prices from
skyrocketing on geopolitical tensions, and the reverse can also be
said -- that geopolitical tensions are keeping oil from falling on
uncertainty in the euro zone. Geopolitical tensions are likely to
remain with us for some time. But if Spain were to formally ask for
a bailout it could mean higher demand for crude and higher prices
for the black gold. You can gain exposure to the crude oil
market through the United States Oil Fund ETF (
USO
,
quote
).
