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Natural Gas Will Dictate Oil Prices, Not Iranian Sanctions or OPEC

NEW YORK ( TheStreet) -- The discussion about Iranian oil on or off the market is a sideshow compared to the platonic shifting in the energy space. Yes, Iranian embargoes by European countries may have a slight short-term influence on world prices, but three years from now it won't even be remembered. Increased European sanctions are scheduled to begin in July.

Iran may have to take less for its oil. However, it's naive to believe Iran will not find a willing buyer. It's simple economics and it trumps the will of politicians every time. All it takes is one consuming nation with the capacity to buy oil on the cheap. It's difficult to even imagine a heavily discounted price as the list of countries willing to buy at a small discount is well beyond the capability of Iranian production.

Countries including India and China may individually totally subscribe to the Iranian production, let alone all the other countries more than happy to expand or begin buying discounted Iranian energy. (Read why I expect oil to fall under $75.)

Moreover, current oil exports from Iran are estimated to be at 10-year-plus lows. Any impact from disruptions in Iranian oil will be small. OPEC's official output target is 30 million barrels per day but most believe OPEC is overproducing now and will continue to do so.

Again, don't expect Iran to close up the lemonade stand and bend to the will of U.S. and Europe. The only real question is if U.S. and European leaders are downright dumb enough to believe what they are doing will have a policy-changing impact on Iran, or if they believe the public is dumb enough to believe it. If both, I would not be surprised.

Tracking Funds

Oil prices are under so much pressure that even after the largest weekly gains this year in the S&P 500 Index ETF SPY (SPY), oil as represented with United States Oil Fund (USO) closed marginally higher at $31.80, a gain of 1.1%.

SPY closed near the highs of last week and the previous two weeks, completely erasing the losses from last week. Even so, USO's close was below the lows from two weeks ago and near the bottom of the previous week. With the recent selloff in USO, SPY's rocket move higher was hardly noticed by oil and I wouldn't doubt a piece of paper hitting the trading pit floor was one of the more rambunctious sounds experienced compared to trading SPY. (Read about natural gas displacing petroleum.)
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