The spike in May NYMEX Crude Oil futures during the pre-market trading session on Wednesday night (Eastern Time) came as a surprise to many traders because, let’s face it, most have us had been lulled to sleep reading about oversupply and rig counts since OPEC decided in late November that it would not support another production cut.
Based on the size of the rally and the subsequent “give back” during the regular session trading hours, it looks as if many traders were unprepared for the news and shifted to panic mode when the news that Saudi Arabia had bombed the Iran-backed Shiite rebels who are taking over neighboring Yemen, hit the market.
Those selling into the rally may have reverted back to the traditional supply and demand fundamentals governing the market. They may have also forgot to do their homework as to why this incident is different from the fighting in Libya, Iran and Syria.
Let’s face it, for almost two years, traders have not reacted to bombing and fighting in the Middle East. If memory serves me right, the last time military action drove the crude oil market higher was in September 2013 when President Obama threatened force against Syria. There was also a similar threat made in September 2012.
After those threats were made, the crude oil market seemed to settle down with traders focusing on the growing oversupply situation. Even when rebel fighters neared Baghdad, the market hardly blinked because we learned…