Tuesday, December 26, 2006

Get ready for stronger oil prices.


Oil Price Boosted by Iranian Ire at U.N. Sanctions

After a two-day losing streak, the oil price rebounded to $63 after Iran threatened to use oil exports as a weapon to combat U.N. sanctions on its nuclear research. The price was also helped by the onset of colder temperatures in the American northeast and by plans by Abu Dhabi to make good on the latest round of announced OPEC production cuts. On Saturday, the U.N. Security Council finally agreed to impose sanctions on Iran's trade in nuclear materials. Iran replied by announcing plans to speed up enrichment rather than rein it in, and in a newly belligerent shift of verbiage, now claims it will use "any weapon" to resist what it defines as illegal sanctions. Iran is the second-biggest oil producer in OPEC, which pumps 40% of the world's oil. The oil price is highly sensitive to political developments in Iran and also in Nigeria, where a group called the Movement for the Emancipation of the Niger Delta [MEND] has unleashed a campaign of terrorist attacks including kidnappings and car bombings at oil installations.
* Sources: New York Times, Bloomberg
* Related commentary: OPEC Opts for Delayed Production Cut, Oil Traders Testing the OPEC Cartel, Bulls Versus Bears on the Oil Outlook
* Potentially impacted ETFs: Oil Service HOLDRS (OIH), United States Oil Fund LP (USO)