Although there have been no major geopolitical issues that have had a significant impact on oil flow out of the MENA region the market is slowly become more aware and nervous with the issues that have occurred over the last few weeks as well as what is evolving of late from the region. The Algerian hostage situation was a wakeup call that this country is not immune to the issues that have plagued many other countries in the area. Also Libya is far from stable with strikes and sporadic fighting curtailing crude oil production levels and postponing some new drilling ventures by some of the IOC until later in the year on the premise that it will be more stable. Egypt is also flaring up once again as more of the population seems to be dismayed by the current leadership resulting in rioting and unrest in many cities in Egypt.
There are other hot spots starting to break through the surface resulting in the geopolitical risk premium starting to slowly creep back into the price of oil. At the moment I would categorize geopolitics as the floor in oil prices at a minimum with an additional premium starting to emerge. Geopolitical risk is currently coming back into the forefront in the mindset of most to the oil market participants.
Global equity values have recovered most of the losses from the first part of the week and are now almost unchanged for the week as shown in the EMI Global Equity table below. The Index is just 0.07% lower for the week with the year to date gain sitting at the 2.6% level. Brazil remains the only bourse in the Index that is still in negative territory for the year with London and the US holding the top two spots in the Index (in that order).
As I have been discussing since last week that many of the global equity bourses are in overbought territory and susceptible to a downside correction at any time. For example the London FTSE is up 7% for the month of January while the US Dow is higher by 6.5%. These are not sustainable monthly gains that are going to continue to be repeated without interruption. There is a plethora of market moving data yet to hit the media airwaves this week any of which could act as a catalyst to send the market into a round of profit taking selling. There will be a move to the downside at some point and the oil complex will also be impacted. Protect your profits from the current run higher.