Did Crude Oil Shoot Up Because Of What Israel Said?

With crude oil prices surging past $138 a barrel on Friday, two reason were thrown around for the spike in price. One was the unexpected rise in the unemployment rate to 5.5%. This seems pretty silly to me, because if there are more people unemployed, then the economy is slowing and the demand for crude oil drops. The second reason was a bit more interesting. Rumors of an Israeli military attack on Iran’s nuclear program, caused worry among oil traders that this will lead to a major mid-east conflict that will seriously disrupt the oil supply.The statement that caused all the furry was made by PM wannabe and current transportation minister Shaul Mofaz. He said that if Iran continues to develop nuclear weapons, then Israel will have no choice but to attack in order to stop the program. This is nothing new. Israel has been throwing out these trial balloons about an attack for the last 2 years now, and as long as the international community sits back and does nothing the chances of an Israeli attack will continue to grow.

My question is, why all of the sudden does Mofaz’s comment get all the media attention? After all, while he would love to be the next Israeli Prime Minister, I think his chances are about as good as mine are to get the job. In his current position of Minister of Transportation, the most controversial thing he could possibly say is that he raising prices to ride the bus.

If you ask me these reasons are the product of 24 hour a day business news. In the world of 24 hour a day news coverage you need a reason for everything. It’s like you need a play by play announcer to track market movements. Speaking about play by play announcers, we send out our condolences to the family of sportscaster icon, Jim Mckay, who passed away yesterday.

If any of you caught Cavuto’s interview with T. Boone Pickens ( he is awesome-we should all be as sharp as he is at 80 years old) a few days ago, you would get a much better understanding of why crude prices are moving up. He said it’s simply a supply and demand issue, and the US is consuming about 1.5 million barrels a day more than the supply, so this is causing a run up in prices. He went on to say that he doesn’t see the price dropping because of ridiculous politics. If the US would drill in Alsaka or even off the Florida coast, not to mention deep sea drilling off the Pacific ocean, the supply/demand issue would end instantly. He also mentioned as an alternative, using natural gas for fuel, which is a great idea, and would pacify environmentalists who are against all kinds of drilling. I even think I saw some picket signs sat my dentist!

While Israel taking out Iran’s nuclear facility would make the world a safer place, and also make for a great movie, I doubt that it’s the current cause for high oil prices.

Disclosure: Author’s fund has no position in any other stock mentioned as of 6/8/08.

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