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Crude Oil Fundamental (05th July 2012)

According to the U.S; Iran has been working over its nuclear program that could support producing nuclear weapons. Iran says the program is for peaceful energy and medical purpose. U.S. sanctioned a law that was enacted on 31st of Dec. 2011 to pressure Iran to give up elements of its nuclear program. According to the U.S. law, financial institutions in nations those settle oil trades with Iran’s central bank will have to win exemptions otherwise cut off from the U.S. financial system. According to the law, nations will have to make significant reduction every 180 days in their oil import from Iran to continue qualifying for an exemption.

Europ collectively was the second largest buyer of Iranian oil in the first half of 2011. EU ban on Iranian oil imports and insurance end that goes into effect from 1st of July 2012, is a part of international effort to make pressure over Iran. The EU ban on insurance for ships carrying Iranian oil affects 95 percent of the world’s tankers because they’re covered by the 13 members of the London-based International Group of P&I Clubs, which is adhering to the EU rule.

Iran is the no. 2 producer in the Organization of Petrolium Exporting Countries after Saudi Arabia, and earns more than half of its government revenue from oil sales. Due to the ban, Iran oil exports has decreased that is costing Iran almost $8 billion a quarter in lost revenue. That estimate is based on a drop in crude exports to 1.50 million barrels a day from 2.5 million a day in 2011.

The strait of Hormuz, located between Iran and Oman, is one of the most important oil-shipping channels in the world, handling about 33% of all ocean-borne traded oil. Iran’s National Security and Foreign Policy Committee drafted a bill Monday 2nd of July proposing to block the Strait of Hormuz for oil tankers in response to a Europian Union oil embargo on imports from Iran, which started on July 1. On Tuesday 3rd of July in Tehran media reported that Iran had successfully tested medium-range missiles capable of hitting Israel in response to threats of military action against the country. If the hostilities in between of Israel and Iran esclate that could set off a conflict across the region and send oil price higher.

Norway’s first industrywide energy strike by Norwegian workers since 2004 is in eleventh day that is currently halting 250,000 barrels of oil a day.

Weekly U.S. crude oil stock data will be published evening 08:30 p.m. and also release of some key economics data. We have been expecting very voletile evening today.

RECOMMENDATION- U.S. weekly crude oil inventory report and other key economic data with the annoucement of ECB interest rate decision will make market very voletile. Due to the lingering tension in between of Iran and Isreal and EU ban on Iran will keep on supporting crude oil price until the fire of hostility is extinguished properly. We recommend to buy crude oil at evry correction with a solid support of 4749 to upside 4900, 4969 and 5038.

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