As the stock market failed on Friday after a spike after the jobs report, oil(NYMEX:CLM14) went higher. The reason was clear. No one wanted to be short over the weekend with rising political and rightly so. Today we see oil pulling back adjusting to the falling stock market because even though we had some disturbing geo-political events over the weekend, traders can act to hedge themselves more quickly in the event there is a major headline and there were a multitude of headlines that could impact oil prices going forward. Not to mention wheat prices.
Russian backed protests in eastern Ukraine and the death of one Ukrainian soldier is raising fears that Vladimir Putin will again be on the move. The protestors are calling for canceling the presidential election in favor of a referendum on becoming part of Russia.
We also are seeing increased tension between Japan and North Korea. The National Post reported that U.S. Defense Secretary Chuck Hagel delivered a two-pronged warning to Asia Pacific nations Sunday, announcing that the U.S. will send two additional ballistic missile destroyers to Japan to counter the North Korean threat, and saying China must better respect its neighbors.
Reuter’s news is reporting that the navies of Iran and Pakistan plan to hold joint military exercises in the eastern part of the Strait of Hormuz on Tuesday, Iran's state news agency said on Sunday. Several Pakistani naval vessels, including a warship and a submarine, docked at the Iranian port of Bandar Abbas on Saturday, the IRNA news agency said, citing an Iranian Navy statement. Iran's state news agency said the joint naval exercises were aimed at promoting military cooperation between Tehran and Islamabad but gave no details of the plans.
Yet with all these worries oil is down mainly because risks were priced in on Friday and so far there has been no disruption to supply fears that Russia would turn off the spigot at least until this point has not happened.
RBOB(NYMEX:RBM14) prices seem to be gaining on the Ultra-Low sulfur diesel. The USA Today reports that gasoline prices are making their annual spring climb. The average U.S. price of a gallon of gasoline has risen 5¢ the past two weeks. The Lundberg Survey of fuel prices released Sunday says the price of a gallon of regular is $3.61, the highest price in Lundberg's twice-monthly surveys since late July 2013. The price is 4¢ below its year-ago point but 44¢ higher than 2013's low.
Californians saw some especially painful spikes this weekend. Drivers there are averaging $4.04 a gallon after a 35¢ jump in wholesale prices since mid-March -- prices could hit up to $4.25 within days. Tarnishing pump prices in the Golden State: lower supplies and rising crude costs. Not to mention Ethanol, blended into gasoline, is also up nearly 60% year-to-date on higher corn and rail shipping costs.
Natural gas(NYMEX:NGK14) prices are consolidating. While short term thinkers point to moderation temperatures big picture this market is a price spike waiting to happen. The natural gas market needs record production when many producers say they are cutting back. Rig counts are falling not rising. Prices will have to rise to get producers moving. Buy calls!