“If you can find a path with no obstacles, it probably does not lead anywhere.”
Oil prices are drifting lower as the situation in Egypt seems to be stabilizing. Egyptian President Hosni Mubarak said he will step down from power after his term expires this fall, for the first time setting a date to end his 30 year run as Egypt's leader. He said in his speech that he had shouldered many responsibilities for Egypt but needed to hand over power to ensure the stability of the country. "I've spent enough time serving Egypt," Mr. Mubarak said. Although he clearly indicated he will not seek reelection in the September the protestors have continued to demonstrate and said they will until he leaves. I would expect the protesting to slow and the situation to return to normal in Egypt as the populace digests the fact that they can see the forest from the trees in that he will be gone in about 7 months.
In other news from the region, the King of Jordon dismissed his entire government on Tuesday and appointed a new prime minister as protests mounted in that country. Contagion around the rest of the Middle East is still a major concern of market participants around the world which has helped to keep the Brent crude oil contract over the $100/bbl mark all week. That said, if in fact the Egyptian situation does begin to stabilize (which I believe it will) oil prices are now at risk for a downside correction as the Egyptian turmoil has not resulted in any lost oil supply nor any interruption in flow through the two main transit points in Egypt. In addition if last night's API data is indicative of what we can expect from the EIA report, the market will get another bearish fundamental snapshot which could easily serve as a catalyst for the downside correction.
On the financial front global equities have staged a recovery rally and have now regained most all of the losses from late last week when the Egyptian situation moved into the mainstream. The EMI Global Equity Index (see table below) is now up by 1.5% on the week returning the Index to positive territory for the year to date at 0.7%. Only China and Brazil remain in negative territory for the year as all ten indices gained ground over the last twenty four hours. The situation in the equity markets is mostly back to pre-Egypt levels with most participants once again beginning to focus their attention back to the macro economic data.