All eyes on Saudi Arabia…

With a planned ‘day of rage’ set for Friday in Saudi Arabia, all those with a betting interest in oil (which is essentially the entire global population in one way or another) will have their eyes peeled to CNN and Twitter to see if things will remain peaceful or get ugly.

If they get ugly….look for Crude prices to move higher – possibly much, much higher. On spotty reports of gunfire during protests today – Crude rallied from a weekly low of $100.62 to a close of $102.70 (Wash Post blog). Violence in Saudi Arabia tomorrow will no doubt help managed futures generally speaking, which are likely long after a classic breakout (see here), but could be hell on the rest of the world… What would $5.00 gasoline by memorial day weekend do to the US economy (hint: it wouldn’t help).

But even if there is violence in Saudi Arabia tomorrow – is that really worthy of a huge spike in Crude Oil prices?  People will panic and think the Saudi oil spigot will get turned off, but the reality is more likely that no matter how much violence there is during tomorrow’s protests – the Saudi government will keep their oil fields, refineries, and shipping facilities well defended and operational for the foreseeable future.

We forget sometimes in the heat of news headlines which spike prices higher – that violence itself doesn’t make Crude more expensive. What really needs to happen to make Crude more expensive is to take production offline and reduce global supply. Can Saudi protesters really affect their production over the next 1, 3, or 6 months? We’re not geo-political analysts, but it seems unlikely.

Morgan Stanley Oil Crisis period performancePast oil spikes have been all about actual disruptions in supply, not possible disruptions. See Morgan Stanley’s recent graph showing percent gains during past crisis periods:

The more likely scenario is that fear and panic drive prices higher, but that overall supply and demand metrics remain intact, leading to equally as sharp down moves when other players bet on prices returning to equilibrium with the supply/demand picture. This will likely benefit short term traders which can take 1-3 day chunks out of the oil market on both the up and down side, and option sellers who can sell into the increased volatility; while having little effect on those longer term programs which are already long (with the back and forth representing noise).

So we’ll wait and see what happens in Saudi Arabia tomorrow, but don’t be surprised if it is a dud…


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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.