After a sluggish start to the week, oil prices have once again gained momentum and moved to the upside in today's action. Prices so far today have risen by $1.31 a barrel to $81.61.
At the start of the week, the market dropped a bit after concerns over a storm in the Gulf of Mexico abated. At that time, analysts were coming out of the woodwork claiming that prices were due for a big drop, the argument being that the recent price increase was unwarranted and unsustainable.
I raised doubts on their views by stating there were a couple of factors that were out of anyone's control that would push prices higher if and when they took place. One of these uncontrollable, yet inevitable, factors the market would be forced to deal with was geo-political tensions that could erupt at any time without warning. This is happening now and is a big reason prices are moving back to the upside in today's market.
The most recent event to push prices higher is the stand-off that is escalating over Iran's nuclear ambitions. This has been going on for a long time, of course. But what is new is that on Tuesday Iranian President Mahmud Ahmadinejad addressed the UN General Assembly, stating that he considers the nuclear discussion to be a "closed issue" and will defy any UN sanctions that may be imposed on it in the upcoming months. Pretty tough words there.
At the same meeting, U.S. President George Bush announced new sanctions against Iran, while calling for more global pressure to force democratic reforms to bring an end to the Iranian government's "reign of fear."
On Tuesday the House of Representatives approved a bill mandating sanctions on foreign energy companies doing business with Iran. In addition to the sanctions, they also urged the U.S. government to brand the country's elite Revolutionary Guards a foreign terrorist organization. Yes, things are definitely heating up and you can be sure that it will not be too long before we are in the middle of a heated political discussion of what additional steps America should take to prevent Iran from developing what America considers to be nuclear weapon technology.
While I think everyone can agree that America already has its hands full with the military campaigns in Afghanistan and Iraq, it would be foolish to think that America will totally dismiss the notion of a military strike on Iran. I am sure that the American government would prefer to allow Israel to lead an attack, but we have to realize that there is a real and growing concern that American military action on Iran could definitely take place before the end of this year.
Definitely some interesting times coming our way, and as long as the situation with Iran continues to hit the headlines you can be sure that oil prices will remain high.
Photo by Daniella Zalcman.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
Why do we have a weak dollar?
Holiday hiring slow for retailers
Closing Bell: What sell-off? (AIG, ABK, EPR, MBI, JAVA, ORCL, ERTS)
