Will Israeli Action Affect Oil Prices – part 2

So, since Friday November 16th, we have seen oil rise by, give or take, 3 dollars a barrel. This has been caused, in part, by the massing of Israeli armour on the border into Gaza, and a fear of a ground war that could drag other middle eastern countries into the conflict, but also due to better than expected financial data from the US and China. Perhaps most importantly, however, there have been positive signs that the fiscal cliff in the US will be averted. On Friday, President Obama held a meeting with senior Bigwigs from both the Democratic and Republican parties and all factions reported that the meeting had been constructive, and that they expect to find a resolution before January. For those of you, who are unaware of the fiscal cliff issue – it’s a $600 billion mix of tax rises (or more accurately the ending of Bush era tax cuts) and spending cuts that could tip the U.S. economy into recession (thus dampening demand for oil). The fiscal cliff is top of most fund managers and traders concerns right now, and everyone is holding their breath to see if the politicians can sort it out. If the fiscal cliff happens, we should expect to see the price of oil drop sharply. So, bringing ourselves back to today – where will oil go? Well, on one hand, the demand fundamentals are still pretty weak – so we should be seeing a reduction in prices. On the other hand, the conflict in Gaza is supporting prices. If any significant happenings occur in Gaza (ground offensive or ceasefire) – oil could shift markedly in either direction. One pundit on Bloomberg, yesterday, suggested that +$5 per barrel was possible if Israel invades. So, “volatility” is today’s word-of-the-day – prices are moving around faster than a hummingbird on speed and those of you who are looking to time any oil or heating oil purchases on the back of market movements… well, it could go either way.