What looked like a sure thing 24 hours ago may not be such a sure thing after all. After being rebuffed by the Arab League and faltering support from the U.K., it looks like President Obama may have to go it alone if he is going to send a message to Syria and the rest of the world that using chemical weapons or other weapons of mass destruction is unacceptable.
You see moral clarity gets a bit cloudier when support from your biggest allies seems to be wavering. London Prime Minister David Cameron who signaled to President Obama that he was on board for a quick surgical strike in Syria then had to backtrack because of opposition from the Labour Party at home.
U.S. House Republicans are calling for the President to answer just a few questions put out by House Speaker John Boehner like: What standard did the Administration use to determine that this scope of chemical weapons use warrants potential military action? Does the Administration consider such a response to be precedent-setting, should further humanitarian atrocities occur? What result is the Administration seeking from its response? What is the intended effect of the potential military strikes? If potential strikes do not have the intended effect, will further strikes be conducted? Would the sole purpose of a potential strike be to send a warning to the Assad regime about the use of chemical weapons? Or would a potential strike be intended to help shift the security momentum away from the regime and toward the opposition? Does the Administration intend to submit a supplemental appropriations request to Congress; should the scope and duration of the potential military strikes exceed the initial planning? To name just a few.
Well the markets that were pricing in an imminent military strike on Syria retreated after the President said that he has not made up his mind about the attack. It seems that the UN, the U.K. and the Arab League may have made up his mind for him, at least in the short term. So in the meantime the market now will try to recalibrate the point at which they now think that any military action might occur. While they may take out the imminent risk premium the truth is that the risk premium will fluctuate and even if things are unclear tomorrow, it will make short selling on oil more dangerous going over a weekend.
At the same time the market will try to asses yesterday's Energy Information Administration report. The reports showed that crude supply rose by more than expected 2.99 million barrels. While some were trying to make a big deal about the build in crude supply, most of the build was in the Gulf Coast and was probably inflated by delayed cargoes due to inclement weather the week before. Now this week there are more storms in the Gulf and imports may be slowed. Refinery runs are still very high and the buffer of U.S. inventory should provide us some cover if indeed the attacks on Syria ever commences.
Gasoline stocks fell by 587,00 barrels as falling prices help demand pick up and U.S. exports picking up to provide Europe some cover for the uncertainty of Libyan oil supply. Distillate inventory also fell, which is not all that unheard of for this time of year. What is unheard of is the surge in U.S. refinery runs coming in at 91.2%. That is 91.2% of expanded capacity means that supply of products should again provide us some protection from a major gasoline price spike.
Surging oil price is particular hurting the emerging markets and those governments are taking steps to halt the dramatic drop in those currencies. As I have said before, a run to gold and silver has been in part due to the sharp decline in those currencies. India acted after the rupee hit a record low after the Reserve Bank of India said it will provide dollars directly to state oil companies in attempt to stop a run on the currency and give the oil companies a chance to compete without getting crushed by the conversion of rupees into dollars.
At the same time they are moving once again to slow gold imports by raising the import duty for gold the third time. India wanted to stem the outflow of dollars and wealth protection into the gold. Yet this so far has backfired because this has caused a panic by people who now may be more despite to protect their value of their wealth. If you were not thinking of buying gold to protect yourself from a falling rupee that you sure might when they tried to restrict everyone from doing it.