Familiar Catalysts Greece, Iran Prop Up Oil Prices

Published on Tuesday, 21 February 2012 17:37 Written by Todd Shriber

New York, February 21^st (TradersHuddle.com) – Oil futures got the short week going in bullish fashion as news of a debt deal for Greece and Iran’s reported halt on sales of crude to France and the U.K. sparked a rally in the oil pits. NYMEX-traded crude for March delivery soared $2.63, or 2.6%, to $105.87 a barrel after trading above $106 a barrel earlier in the session. In London, Brent for April delivery tacked on 1.1% to settle at $121.38 a barrel.

European finance ministers awarded another $173 billion in bailout funds to Greece, a move global financial markets are surely hoping will help the country avoid sovereign debt default. Iranian news reports claim the OPEC member halted sales of crude to France and the U.K. on Monday. European Union members get about 18% of their oil from Iran, but as we have previously noted, the country is apt to find willing buyers in China, India and other emerging markets to make up for lost sales to Europe. British policymakers claim the country is all right without Iranian oil for now.

Oil’s rise today claimed a predictable victim: Airlines. The Guggenheim Airline ETF (NYSE: FAA) plunged 6% on volume that was nearly six times the daily average. The ETF was up more than 20% year-to-date, a surprise given that oil prices are higher on the year as well. Investors have seemingly ignored oil’s surge in relation to airline stocks, rewarding the latter as rebounding economy play.

That story may be over as there is no getting around the fact that fuel and labor are the two biggest costs for any airline and every $1 per barrel oil rises, that gouges the global airline business for $1.6 billion and it looks like oil prices have finally caught up with FAA.

The Dow Jones Industrial Average struggled to stay above the psychologically important 13,000 level, but that cannot be blamed on Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX). The two largest U.S. oil companies closed higher by 1.1% and 1.6%, respectively. Chevron will reportedly spend $5 billion to $6 billion to keep oil flowing at Kazakhstan’s Tengiz oil field, according to a report published today.

Shares of oil services firm Weatherford International (NYSE: WFT) plunged almost 14% on volume that was roughly six times the daily average reported fourth-quarter results today, but that wasn’t the problem. The company basically said it still hasn’t fixed a pesky accounting that was first mentioned almost a year ago. Weatherford said all of its earnings reports from 2008 to 2011 are still subject to possible restatement.

An audit review for 2008-2010 could result in adjustments of $225 million to $250 million well above the $100 million to $150 million the company forecast last March.