For oil traders used to basing decisions on algorithms or equities, it's time to bone up on old-fashioned supply and demand--or exit gracefully.
For oil traders used to basing decisions on algorithms or equities, it's
time to bone up on old-fashioned supply and demand--or exit gracefully.
Brent crude futures on the ICE futures exchange on Monday became the first
major benchmark to trade above $100 a barrel in more than two years. It was a
decisive break, with Brent, the main pricing benchmark in
Europe
and
Asia
,
nearing $102 at one point yesterday.
Meanwhile, Nymex futures, the
U.S.
benchmark, jumped almost 8% in two days, and saw record volumes of nearly 1.5
million contracts traded on Friday.
The sudden spike in activity comes as swelling anti-government protests in the
country that hosts vital oil transport links cleared aside the ambiguity that
typically defines daily oil price moves. On Friday and Monday, there was no
need to check the dollar's strength against the euro, or the 200-day moving
average price to divine why oil futures were rocketing.
Traders' positions were increasingly determined by how they estimate the odds
that
Egypt
's
protests threaten the shipment of oil through the
Suez
Canal
and the operation of the Sumed pipeline.
"Something like this trumps everything else that people have been looking
at in the markets, and the people that are in the market shift," said Kurt
Kinker of Mirus Futures in
Chicago
. "There
are traders that are going to jump at this, when there is an enormous amount of
uncertainty ... but some people just can't stomach it."
Prices are down slightly Tuesday, though if the previous few sessions are any
indication, the real action will come when
U.S.
trading picks up, around 1400 GMT. At 1150 GMT, March Brent futures traded down
0.6% at $100.43 a barrel, while Nymex futures were off 1% at $91.26 a barrel.
Oil prices often need a geopolitical crisis to kick up a level. In 2006,
Israel
's
brief war with
Lebanon
and a
North Korean missile test spooked Nymex futures above $75 a barrel. In 2008, it
was Nigerian militants sabotaging oil installations that set the stage for
crude to trade in triple digits for the first time.
Whether Brent keeps rising, and Nymex futures join the European benchmark above
$100, will be determined by how big
Egypt
's
protests get, and how far they spread.
"The direction of crude prices today will depend on how the demonstrations
in
Egypt
go," said Christine Tuxen, a senior analyst at Danske Research.
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