There is nothing sillier than a silly laugh.
Yesterday was mostly a risk asset off trading day as commodity prices were hit with a strong round of selling coming from all corners of the market. Oil prices were pummeled for the second day in a row with WTI falling around $8/bbl over the last two days while Brent declined about $7/bbl over the same timeframe. As I have been suggesting the market has been susceptible to a downside correction which is how I would categorize this week's trading activity so far. Even with the current downside price move both WTI and Brent remain in overvalued territory based on the overall global supply and demand profile of the complex. Further accelerating some of yesterday's selling was yet another recommendation by Goldman that hit the media airwaves suggesting that its clients close down their long oil positions (as well as several other commodities) as prices hit their objective prematurely.
So far this morning the selling has subsided and oil prices are trading marginally higher. The situation in Libya rages on with no end in sight at this point in time as the African Union diplomatic initiative has now been rejected by the opposition group as well as the international community as it did not include a removal of Gaddafi from power. About 1 million barrels per day of oil remains shut-in as a result of the Libyan conflict. However, Saudi Arabia indicated yesterday that they have actually reduced their production level based on a lack of demand. Saudi Arabia quickly increased production after Libyan oil was shut-in to make up for Libya but some of the demand for that make-up production has been slowing. This is just another point on the curve that indicates there is no shortage of oil anyplace in the world. The risk or fear premium has receded a bit and may continue to recede further from current levels but until complete stability comes to the region the risk premium will not go away completely.
Global equity values are also rebounding in overnight trading as shown in the EMI Global Equity Index table below. Although the week to date loss for the Index widened to 1.9% (mostly due to losses incurred during yesterday's trading hours) most bourses are in positive territory since Asian trading began including US equity futures which are currently pointing to a higher opening on Wall Street this morning. China remains solidly on top of the winner's column for the year to date with several developed world bourses bunching up behind China. The next several weeks or so will be a volatile period for global equities as the quarterly earnings season is just getting underway with all eyes focused on how the meteoric rise in oil prices as well as most other commodities is impacting not only current earnings but going forward guidance. For today equities are a positive for oil prices.