MF Global, a commodity futures trading firm in New York, advises this morning that the run-up in crude oil prices due to Libyan unrest, looks to have run its course for the moment. In its Daily Energy Report it warns “against going long at current levels,”: and suggests today’s “entry price seems prohibitive.”
Crude oil spiked to $112 a barrel in Europe and over $100 a barrel in the US (up 10% here yesterday) just on expectation production 2% of world production from Libya has been severely reduced. Speculation in the oil futures market reached an all-time record high yesterday for Brent crude as 805,232 contracts traded, 10% higher than the previous peak trading volume on January 12.
Yes, it’s doubtful Libya’s 2% of the globe’s supply will be replaced any time soon by Saudi Arabia or the other oil producing nations. MF Global believes either Libyan leader Quadaffi will be out or new oil production will eventually make up for Libya’s 2%.
BMO Capital Markets, a Canadian financial group, warns though that higher oil prices “could derail the US economic recovery. This possibility is by far the most serious ramification of the turmoil in Libya and the threat of political unrest in other oil producers like Iran. Should Iran experience general unrest, strikes, and mass demonstrations that reduce its daily oil production– then the speculators will drive oil prices higher on global commodity markets.
Another setback would be an irrational parabolic spike in oil prices that raises the rate of inflation and threatens the quantitative easing of Fed Chairman Ben Bernanke. All the more reason why the Obama administration should push for Quadaffi to step down. If violence persists, MF Global will be wrong and oil could jump to $120 a barrel. But, mark that it is already up more than 10% just on the threat of losing 2% world oil production temporarily.