Financial markets reacting negatively to a seemingly obscure or remote risk was commonplace not that long ago. Whether it was a slightly disappointing Chinese growth number, fears about the future of the Euro, or concerns about Greek debt, much of the recovery from the recession has been about lurching from worry to worry. In the last couple of years, however, that has eased. There has been a focus on improved global growth, lifting stocks as well as growth dependent commodities such as oil. Sure, the OPEC+ agreement to cut output has helped, but the long upward run in crude prices could not have happened without a belief that the demand picture was improving.
This week, however, that ended as a run on the Turkish lira instigated fears of contagion and another banking crisis. So, with a whiff of international panic in the air, how should energy traders and investors react?
(Click to enlarge)
First, it is important to remember that what is in the headlines is not the only influence on the price of oil. The move down from the mid-seventies to challenge the psychologically important $65 level that you can see in the chart above has gone through several phases, with both the supply and demand sides of the pricing equation having an influence. It really started as reports of increased crude output by Saudi Arabia prompted doubts about the sustainability of the output cuts but has been sustained by demand concerns. At first those concerns were focused on…