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The Geo-Political & Speculative Factors.

In this perspective come two key factors, excessive buying of commodities including oil by four major Wall Street banks and a worsening nuclear stand-off between Iran and the West. These are likely to push paper WTI up in the coming months, with one of the banks forecasting a price of $90/b for the US marker.

Addressing an annual conference of the Institute of Energy Economics of Japan (IEEJ) in Tokyo on May 19, APS Energy Group President Pierre Shammas noted that these big banks, joining a long line of huge funds and other speculators, "have been pouring unprecedented amounts of cash into oil and other commodities, betting on their own power to push prices up and on geo-political factors in the Greater Middle East (GME) and Africa".

Shammas added: "It was said in late April that alone Bank of America, Morgan Stanley, Goldman Sachs (GS) and JP Morgan had mobilised a total of more than $4.683 trillion for the trade, mainly in paper WTI and some key fuels and gold. Goldman Sachs then predicted WTI will hit $90/barrel in coming months. The others predicted an oil shortage in 2011 and WTI to hit $110/barrel.

"JP Morgan for example was said to have VLCCs and ULCCs filled with crude in the Mediterranean, NWE and the Far East. It was said these four US banks were together holding the equivalent of about half the amount of WTI stored in the American Strategic Petroleum Stockpile (SPR), plus a huge amount of gold, etc. (At one time in May gold hit a record of nearly $1,300/ounce).

"The Kuwaiti Oil Ministry's Assistant Under-Secretary and the emirate's Governor at OPEC, Nawal al-Fuza'ie, on May 4 warned that paper crude could hit $100/barrel if there were dramatic developments' in the Gulf or elsewhere. She said an escalation in tension between Iran and the West over Tehran's nuclear ambitions, security developments in Nigeria and weather changes could push the price to that level. Yet such a change in factors would be temporary.

"However, a top-ranking Saudi official on May 8 told APS that Riyadh and other OPEC members would intervene immediately' if paper Brent were to hit $90/barrel. He said OPEC could hold an emergency meeting ahead of its regular conference to deal with the matter if crude oil prices were to reach such a level.

"Iran's Navy on May 5-12 held extensive war games in the Strait of Hormuz, a vital water-way through which 40% of the world's oil trade moves every day, after similar games held on April 22-25 by the ruling Islamic Revolutionary Guard Corps (IRGC). While experts in the six oil and gas-rich Arab Gulf Co-operation Council (GCC) states said the IRGC's were a rehearsal of a potential Hormuz blockade, Iran's Navy units on May 7 rehearsed a search of ships sailing through the water-way. These have been part of a series of manoeuvres and the test firing of a variety of missiles designed to show the West and the GCC region the might of Iran's military - both the IRGC and the regular armed forces.

"Yet all these displays appear to be sending a Tehran warning against any Western or Israeli attack on Iran. Iranian military and IRGC commanders have been stressing these displays were merely defensive, rather than preparations for aggression against any power or neighbour.

"Apart from American-led efforts to secure a UNSC resolution for a fresh set of sanctions against Tehran, the US Congress has prepared a bill for a unilateral fuels embargo on Iran. France, the UK and Germany have signalled that they would back such an embargo. US officials have indicated an embargo would include measures against insurance firms covering ships that will sail to and from Iranian ports.

"Iran is leading an axis of anti-US/anti-Israel forces in the GME. This vast region will be affected in the event of military hostilities between Iran and the West, with the AfPak front already affecting security in the US itself.

"A Pakistani Taliban group had just threatened to send suicide bombers to the US, such as the Pakistani-born US citizen Faisal Shahzad who on May 1 put a badly planned car bomb in New York's Times Square which failed to explode (see news19AfPakIrnMay10-10).

"Iran is also being accused of trying to control Iraq after the planned pull-out of US combat troops from that country later in 2010. It has got Iraq's two Shi'ite blocs to merge in order for them to form a new government for a four-year term after a March 7 parliamentary election". (But so far Iran has failed to get a government in Iraq formed, with a secular bloc seeking UN intervention - see rim5IrqSadrMay31-10 & fap5IrqGovtNegMay10-10).

In a commentary broadcast on May 3, the official Iranian news agency IRNA said there was only one lion guarding its den in the "Persian Gulf" which was Iran, adding that states in the region should stop chasing the lion like a hyena to get part of the left-over food. This was reminiscent of hateful commentaries and statements against GCC states made by Iranian officials and the media during the Iran-Iraq war of 1980-88.

Shammas told the Tokyo conference: "Will there be a war between Iran and the Western powers? No one outside the close Iranian circle really seems to know. But Iran's internal crisis, the worst since the fall of the Pahlavi monarchy in early 1979, continues to deteriorate, undermining the legitimacy of the theocracy's Supreme Leader Ayatullah Ali Khamenei and President Mahmoud Ahmadi-Nejad, both being called dictators' by their Khomeinist opponents who accused them of having rigged the June 12, 2009, presidential elections. It is alleged that both Khamenei and Ahmadi-Nejad are controlled by the IRGC, which has militarised the theocracy.

"The opposition Green Movement, led by followers of the late Imam Ruhullah Khomeini (founder of the Shi'ite theocracy), is determined to stage massive rallies throughout Iran on June 12 to mark the 2009 drama. If this internal crisis worsens further, if the US imposes a fuels embargo on Iran, and if the Khamenei regime is to externalise its trouble, then it would be possible for the IRGC to provoke US and other Western naval units trying to enforce the ban. In that case there could be a war.

"Yet even in the event of war, the IEA will immediately declare a state of emergency and release the strategic stockpiles of its member-states. In that case, world oil prices will fall - just as they did in January 1991 when the US led a war to liberate Kuwait from Saddam's Iraqi forces. Immediately as that war began, world oil prices fell sharply".
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Publication:APS Review Oil Market Trends
Date:May 31, 2010
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