Last week, I mentioned that crude oil treaded at a critical juncture looking for either a correction or a breakout. With the market’s declarative stand, Oil finally resolved the impasse with a breakout to a FRESH record nominal High. Its sibling gold was equally buoyed as shown in Figure 1.
Figure 1 stockcharts.com: Record Oil, Gold Follows
While one may argue that seasonality could have also been a factor in oil’s latest upsurge in view of the summer driving season in the US, the breakout coincides with the escalating violence in Lebanon which could have further tipped the fragile scale of balance in the world oil markets.
The public appears to have seriously underestimated the ongoing military developments in the Lebanon, which could run the risks of further escalation. The warring protagonists, Israel and the Hezbollah, seems to acting as representatives for other parties involved in advancing their positions in the Middle East, particularly, the United States and Iran and possibly Syria. In short we could be witnessing an unraveling of a proxy war.
According to the astute guys at Stratfor,
``Hezbollah has two patrons: Syria and Iran. The Syrians have used Hezbollah to pursue their political and business interests in Lebanon. Iran has used Hezbollah for business and ideological reasons. Business interests were the overlapping element. In the interest of business, it became important to Hezbollah, Syria and Iran that an accommodation be reached with Israel. Israel wanted to withdraw from Lebanon in order to end the constant low-level combat and losses...”
``Hezbollah strategically was aligned with Iran. Tactically, it had to align itself with Syria, since the Syrians dominated Lebanon. That meant that when Syria wanted tension with Israel, Hezbollah provided it, and when Syria wanted things to quiet down, Hezbollah cooled it.”
Hezbollah’s possible motivations for the kidnapping and killing of Israelis soldiers which provoked the vindictive strike in Lebanon could be for Iran, 1) to expand its negotiating levers or bargaining chips on its present standoff against the United States on its nuclear program and 2) in lieu of the Al Qaeda, by realigning a global network against US interests, to possibly ‘reclaim its leadership in the Islamic radical resurgence’.
For Syria, a possibility to reassert control or possibly reabsorbing Lebanon and/or to expand its commercial exploits.
For the US, according to the Stratfor, ``an invasion of Hezbollah-held territory aligns Israel with the United States. U.S. intelligence has been extremely concerned about the growing activity of Hezbollah, and U.S. relations with Iran are not good. Lebanon is the center of gravity of Hezbollah, and the destruction of Hezbollah capabilities in Lebanon, particularly the command structure, would cripple Hezbollah operations globally in the near future. The United States would very much like to see that happen, but cannot do it itself. Moreover, an Israeli action would enrage the Islamic world, but it would also drive home the limits of Iranian power. Once again, Iran would have dropped Lebanon in the grease, and not been hurt itself. The lesson of Hezbollah would not be lost on the Iraqi Shia -- or so the Bush administration would hope...Therefore, this is one Israeli action that benefits the United States, and thus helps the immediate situation as well as long-term geopolitical alignments.”
Further, today’s warfare could be a prelude to a US/Israel led military strike on Iran utilizing the present hostilities as cover.
In short, the risks run high that the theaters of war may escalate to include major oil producers as Iran. This heightened anxiety is giving way to a premise for higher oil prices as the drumbeat of war persists. Israel is said to be calling up its reserves, while Syria and Egypt are said to be having on going talks on this matter according Stratfor. $100 per barrel soon?
Based on technical or chart data, using the most recent trough-to-peak move, Crude oil may attempt to go for $85 (!!!) before undergoing a retracement. 
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