Energy disputes between the Ukraine and Russia are becoming as much of a New Year’s tradition as the Waterford ball falling in Times Square.Once again as the new year approaches, we have another dispute between Russia and the Ukraine that may or may not be settled and rising tensions in and around Iran may cause more caution from sellers as we get ready to celebrate another holiday.
Sometimes the price gets ahead of the fundamentals. Other times the fundamentals catch up to the price. Last week in a holiday shortened trading week, oil got too excited about cold weather and a flawed weekly inventory report as the marketplace lacked the type of perspective it has when there is more volume.
Yet yesterday I feared that the market might not be taking seriously enough the threats that were evolving in Europe and Iran. Of course if you assume that last week went too high and now we are holding gains it looks like once again the market had it right in the first place. It seems that rising geo-political heat is in part helping justify the extended rise.
Last New Year holiday oil prices got beaten up. Oil hit a low of 3240 December 19, 2008 and rallied in part because they were oversold but in part on rumors that gas supply would be cut by Russia to the Ukraine.
On New Year’s Eve oil was as low as 3694 before hitting a high of 4554 on news supplies had been cut and 8 European countries saw major falls or cut-offs of their gas supplies from Russia transported through Ukraine. By January 6, the dispute drove prices to above $50 to 5547 before a break back down 3270. Then oil reversed and never looked back for the rest of the year.
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