Over the last 24 hours, Libya has declared force majeure on both oil and gas production as Gaddafi makes a stand and attempts to retain control of the country. As I said yesterday, I think the situation in Libya is beyond the point of no return and with little likelihood that things will go back to normal anytime soon. It is not obvious to the world what might yet transpire in Libya as reports indicate that the eastern region of Libya...where most of the oil is ... is not in the control of Gaddafi at this time. No one opposition group or individual has emerged as a likely leader in the country and as such the market views Libya as a high potential for civil war or in a state of chaos for the foreseeable future.
In Algeria, the government lifted emergency powers hoping that it would calm the populace a bit. In Bahrain the monarchy continues to attempt to survive and quell the protests by giving money to the citizens, releasing political prisoners and showing a willingness to talk. In Iran, the government continues to put down any attempts to protest while it sent two warships through the Suez canal to take the attention off of its own internal problems. So in a nutshell, the situation in North Africa and the Middle East is not any better today than it was yesterday and the amount of oil flow at risk is still substantial with the game changer...Saudi Arabia front and center in the minds of all traders and investors around the world.
The negative market sentiment has spread around the world quickly, as shown in the EMI Global Equity Index table below. With the exception of the China bourse all of the other bourses have declined over the last 24 hours with selling continuing in Europe this morning but the US equity futures markets indicating a slightly higher opening on Wall Street in a few hours. The Index is now lower by 2.3% for the week pushing the overall Index back into negative territory for the year to date. Needless to say the global equity markets are not very supportive for oil prices or the boarder commodity complex, but as described above, oil has pretty much decoupled itself from all price drivers other than the geopolitics of North Africa and the Middle East.
Interestingly, the US dollar has not yet seen any major inflow of cash as it has in the past during times of crisis. In fact the US dollar Index is in negative territory this morning (so far). Under normal times, the dollar move would be supportive to both oil prices as well as the broader commodity complex. But as I said above, all markets are primarily focused on the outcome of the most important oil region of the world.