05/08/2008

The Strait of Hormuz

Crude oil fell to $118 a barrel on speculation Tropical Storm Edouard won't damage U.S. Gulf facilities and as concern economic growth in Europe and the US will slow prompted investors to sell commodities.

Oil dropped to its lowest since May 5 as Edouard's sub- hurricane wind speeds eased concern that offshore and platforms would be damaged by the storm.

Very little oil production has been shut in by Tropical Storm Edouard, gasoline stocks in the US are high enough to limit any crisis from refinery shutdowns, so the market's returning its attention to the weak demand picture.

Crude oil for September delivery fell as much as $3.41, or 2.8 percent, to $118 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $118.95 at 10:27 a.m. London time. Brent crude for September settlement fell as much as $3.77, or 3.1 percent, to $116.91 a barrel on London's ICE Futures Europe exchange, and was at $118.28 at 10:24 a.m. London time.

Oil has lost almost $30 since touching a record of $147.27 a barrel in New York on July 11 as unprecedented fuel costs prompted consumers in Europe and the US to limit fuel spending.
The dollar rose to a six-week high against the euro before a Federal Reserve meeting today at which policy makers may leave interest rates on hold and highlight concern about inflation. The dollar traded at $1.5494 per euro, the strongest level since June 24.

Demand destruction seems to be gaining some credibility and traction. News about Iran testing a new anti-ship weapon this weekend and the storm would have had the market up $5 three months ago. The fact that it hasn't does indicate some shift in psychology..The commander of Iran's Islamic Revolutionary Guards Corps, Brigadier General Mohammad-Ali Ja'fari, announced the weapons test today on state-run news services. He also reiterated a warning that Iran could respond to any attack by closing the Strait of Hormuz, through which a quarter of the world's oil is exported.

This attitude by Iran cannot and will not be tolerated by any Western and Middle East powers...any move to block the Strait of Hormuz is pure speculation...
World crude demand will continue to fall and by the end of summer there will be another 3% decline in crude demand...the demand will only reach normall values when the crude price reaches and stays below $100 a barril...

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