Crude Oil Biased Bullishly On Threats Iran May Close Strait Of Hormuz

After crude oil declined yesterday, it rebounded to the upside today on a draft that Iran may close the Strait of Hormuz against EU ships and sanctions supporters, which might end the situation of political escalation and military action. This upside effect has countered the downside pressure from the United States’ contracting manufacturing data reported yesterday.

Crude oil opened today’s session at $83.64 where it rallied to the high of $84.61 after it reached a low of $83.32 and it is currently trading around $84.20 a barrel.

After negotiations failed between Iran and the west on Iran’s nuclear program, the EU embargo on Iranian oil exports started two days ago which also prevents EU companies from providing insurance to tankers carrying Iranian oil to other countries, clamping down Iran’s main source of income. However, Iran will not tolerate these sanctions and it might implement its previous warnings to close the Strait of Hormuz.

Iran's National Security and Foreign Policy Committee has drafted a bill urging the country to halt oil tankers from shipping crude through the Strait of Hormuz to countries that support sanctions against it including the European Union. Noting that more than third of the world's oil exports pass through the strait coming from Saudi Arabia, Kuwait, Iraq, the United Arab Emirates and Qatar.

Iranian MP Ibrahim Agha-Mohammadi said to Iran's parliamentary news agency: "There is a bill prepared in the National Security and Foreign Policy committee of Parliament that stresses the blocking of oil tanker traffic carrying oil to countries that have sanctioned Iran, this bill has been developed as an answer to the European Union's oil sanctions against the Islamic Republic of Iran."

Crude oil has neglected the negative effect from the world’s largest economy’s manufacturing which contracted for the first time in three years during June reflecting the weak recovery pace due to the negative impact from the deepening European debt crisis.

Also, hopes in Europe that appeared after last week summit started to fade after the Finnish and the Dutch governments said that they would not approve the use of the eurozone’s bailout funds for buying bonds from the market to halt the rising borrowing costs on some European members.

In general, the market a movement is hardly to predict at the current time especially crude’s moves, as many factors are affecting the market. As for the United States, hopes that the Fed may announce more policy easing increased after the contracting manufacturing. On the other side, the summit’s outcome which supported the market might be negated shall Europe again fall into mixed messages and disarray over the course of policy action that still lacks the details on how to implement the decisions taken at the summit.