Markets are set to open lower with oil spiking higher. This is after Saudi Arabia had two oil facilities attacked by drones over the weekend.
The US blames Iran. Iran claims innocence. Name calling ensues, and things quickly escalated to saber rattling. So, long story short, oil prices are spiking higher as some of Saudi Arabia’s production went offline. And, of course, markets are roiled because uncertainty is up.
Oil is an interesting deal. It is highly integrated into the entire global economy. So a shift is oil is a fairly systemic event. The real question is, does this little tiff lead to something more significant? Or does it simply blow over after a few days and life goes on?
Judging from the futures markets, stocks don’t seem terribly concerned… at least not yet.
Futures are down about a third to a half of a percent or so. But that’s not really that particularly out of the ordinary with stock markets already nearing their all-time highs again.
The set up, at least for now, appears to be a sideways move. This is encouraging as market participants are taking time to digest this news rather than knee-jerk and panic over it.
The key to watch for is contagion. If this issue becomes larger, energy prices in general could become an issue. Interestingly, this is not necessarily a negative for the US. In fact, if oil prices climb, it make be stimulative for job creation in the US. That could drive the dollar even higher as the US has shifted to a net oil exporter. Higher prices could spool up the Dakotas and shale production (something the present administration is friendly towards).
During the shuffle, keep an eye on some simple moving averages. Overall technical signals have been pretty consistent recently. Money continues to seek the safer corners of the equity markets. Fixed income has corrected recently, so it’s less also in less rarefied air now. That makes the 50-day and 100-day moving averages of the SPX useful barometers for the time being. They’re at roughly 2950 and 2915 respectively.
Bottom line, the US has a lot of oil. The instability in the middle east is a cause for concern, but it shouldn’t be a cause for panic. The bigger issue is how this gets handled. Stay tuned… and, as always, if something material changes, this blog will get updated as well.
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