On Wednesday investors were closely watching the sharp decline in the price of oil trying to better understand why crude is falling so quickly.
Published reports suggested the decline was a referendum on the world economy; the latest purchasing managers indexes (PMIs) suggested it was almost inevitable that the euro zone returned to recession.
However, strategic investor and top commodities trader Dennis Gartman says the decline is probably about something else.
Riot police clashed with demonstrators and arrested money changers in Tehran on Wednesday in disturbances over the collapse of the Iranian currency.
That, Gartman says is a big deal. It means inflation is rampant and starting to take a toll.
“If there’s one thing we know from history it’s that governments are toppled by inflation,” Gartman says. ”It’s one of the chief reasons why governments fall.”
And as a result, pros now have to factor a new catalyst in the oil market - the very real likelihood that Iranian President Mahmoud Ahmadinejad may soon fall.
In other words, “The possibility of regime change in Iran just became real,” Gartman adds.
If the regime changes it likely means the Obama administration will lift sanctions against Iran and immediately there will be more oil on the market.
That's why prices are plunging lower.
And the outlook for the oil market gets even more bearish. “A new regime would probably pump a lot of oil because they need cash,” Gartman explains. The market now has to factor in the potential of a sharp increase in supply.
All told, the fundamentals for oil are very negative. “It’s hard to be a seller here – but I’d be a seller of any bounce.”
Posted by CNBC's Lee Brodie
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