Oil Prices Will Stay Strong: Opinion

NEW YORK (TheStreet) -- I wish oil prices were coming down significantly, I really do.

Unfortunately, all the risks in oil remain to the upside even as crude oil prices have eased. Over the next several months, I can't see much relief at the gas pump.

Oil has taken a tumble in the last two weeks, dropping mostly because of impending nuclear negotiations with Iran.

There is hope the Iranians will abandon their uranium enrichment programs and end the ratcheting tensions in the Middle East and the increasing threats of a supply shortage.

It has been this major supply risk and the upcoming EU boycott of Iranian oil that have fueled the oil and gas price run-up and continue to keep prices high.

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And upcoming talks are not all that have moved prices downward.

Negative Chinese PMI reports, indications the Federal Reserve is moving farther away from QE3, increasing Spanish bond yields and a replay of Greek political anxiety about austerity are all putting pressure on global stock markets and oil prices as another risk asset.

West Texas Intermediate crude prices have dropped almost $8 from late February, from almost $110 a barrel to a little less than $102 on Tuesday.

But the hopes for a continued drop in oil and gas prices are overrated.

A Reuters report has Iranian President Ahmedinijad claiming his country can easily withstand a total boycott of Iranian oil exports for more than two years if necessary -- not the statement of a leader about to deliver a major concession at upcoming talks.

On the other side, Israeli defense minister Ehud Barak appeared on CNN Sunday expressing doubts that sanctions will ever be able to force the Iranians to give up their nuclear aspirations.

The implication of that statement is fairly obvious: If economic sanctions won't get it done, it becomes fairly clear what Israel believes is the ultimate solution: strategic destruction of Iranian nuclear facilities.

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And, there is a real boycott in place to start in July, taking more than 2 million barrels a day of supply off the global market.

And Iran is not the only supply issue that exists. Further troubles in Egypt, Syria, Sudan, Yemen, Iraq and Libya still threaten smaller but still significant supplies.

Stock markets here in the U.S. have been cooling after a red-hot first quarter, taking risk assets such as oil down with them.

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But, although earnings season isn't inspiring a lot of excitement and confidence, U.S. stocks will continue to be perceived as a relatively strong investment and will continue to attract capital.

In other words, stocks are not falling out of bed. They will likely find strength soon and turn around, taking oil and gas prices with them.

In all cases, the greatest risks that dominate oil are to the upside, and oil traders know this. It is far easier to ride a slow downtrend by trading around a long position in oil than it is to be short, always leaving open the overnight disaster that any supply threat could deliver.

In sum, I'd like to see oil and gas prices go down significantly, but it just doesn't seem likely.

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