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Use Oil Rally On Iran Fears to Sell, Say Pros

A couple of “Fast Money” pros largely brushed aside concerns about Iran’s effect on crude oil prices Tuesday, focusing instead on decreasing demand as the stronger factor in the commodities market.

“It’s saber-rattling again,” MercBloc President Dan Dicker said.

Crude oil prices briefly spiked $3 Tuesday on news that Iran was preparing military exercises in the Strait of Hormuz.

Thirty percent of global seaborne crude shipments and 17 percent of oil traded worldwide passes through the waterway.

“There’s been a lot of activity in the way-out-of-the-money calls, both on the upside and on the downside, which makes it very strange,” he said. “Every fundamental says you should short oil. You don’t want to be long oil, but it’s practically impossible to be short here.”

Call options in the $130 to $155 range were 25 percent to 93,000 contracts, while $45 to $60 put options were 33 percent to 60,000 contracts, according to Dicker. Brent futures were up $1.68 a barrel to $108.94 shortly before 1 p.m. ET, and U.S. light, sweet crude rose $2.17 a barrel to $99.94.

“It is very much in Iran’s interest to rattle the cage,” trader Steve Cortes said. “It is not in their interest to actually start a fight with the United States.”

Cortes said he used the day’s rally to sell.

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“Oil has so vastly outperformed other commodities — say, for instance, aluminum, which has traded dreadfully — that the oil bid is not about real demand,” he said. “It’s purely about Iran fear, and you should fade that fear.”

Cortes also looked to China, noting that the Shanghai Composite was down 20 percent for the year.

“That is terrible news for crude,” he said. “Crude is only being held up by Iran, and maybe that’s enough if there’s going to be an actual conflagration in the Strait of Hormuz.

“I’m going to bet that there won’t be, and I used today’s crude rally to fade it. One of the main reasons is weakness in China.”

Trader Brian Kelly also said China was a big concern.

“If you just run a simple correlation of China GDP versus oil, they are positively correlated, which they’re negatively correlated if you do the U.S.,” he said. “So, if you have a falling China, you have falling oil prices.”

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Trader disclosure: On Dec. 13, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Stephen Weiss Is long QCOM; Is long EUO; Is long BA; Stephen Cortes; Is Long Treasuries; Is Long (SVU); Is short Australian Dollar; Is short Euro Currency; Is short (AAPL); Is short Crude Oil Futures; For Dan Dicker Is long RIG; Is long SLB; Is long BHI

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