While the financial crisis continues to unfold across Europe, far deadlier tensions are rising in the Middle East. The market sentiment for oil prices should be bearish, given the current economic conditions; however, continued statements by leading members of Israel's government about concerns regarding the potential for Iran to gain nuclear weapons has once again pushed up oil prices. The higher oil prices go, the harder it hits the average consumer.
This time, Prime Minister Benjamin Netanyahu is raising the stakes by potentially alienating U.S. President Barack Obama. Over the past few days, the political climate between Israel and the U.S. has certainly cooled. Among the verbal volleys are statements by the Israeli prime minister that no country, including the U.S., had the moral right to prevent a strike by Israel. Additionally, Israeli officials also came forward in denouncing what they see as lackadaisical U.S. foreign policy with regards to Iran.
Market sentiment regarding oil prices is naturally on the edge with any scenario that occurs in the Middle East. That region has been and will continue to be a powder keg; any spark could set off a massive spike in oil prices. This lightning-fast response by oil prices to any comment by political leaders is the reason many participants monitor the market sentiment very close.
The relationship between Israel and the U.S. has generally been quite close and mutually beneficial. However, the current Israeli prime minister appears to be frustrated by the lack of motivation from the current American administration in supporting an attack on Iran. The U.S. doesn't have many allies in that region; helping Israel does make good long-term sense, especially when we're talking about Iran, with its main goal appearing to be the complete destruction of a neighboring country and all of its population.
While Israel might be frustrated, America has played a large part in enacting strong financial sanctions against Iran. It appears that Israel also wants America to lead the attack. All of this comes in the middle of an election in the U.S. Naturally, the current administration is focused on getting re-elected. To put this kind of pressure on an American president in the midst of the election doesn't make much sense to me.
Chart courtesy of www.StockCharts.com
Oil prices have been extremely volatile over the past year. Market sentiment has shifted from extremely bearish to bullish in the past couple months. Once oil prices broke the downtrend in early July, the market was set up for a move back to its 200-day moving average (NYSE:MA). You'll find that, in many situations, the price will gravitate toward the 200-day MA with the help of the market sentiment.
Obviously, the current trading range for oil prices will not remain for long. Either an event such as a military strike will occur that will shift market sentiment to extremely bullish proportions for oil prices, or a compromise will be reached and the true economic situation will be evaluated with a more bearish overtone to oil prices. In either case, I would wait to see a break from this range for an indication of where oil prices and market sentiment for this commodity are headed.