How the Situation in Crimea Could Cause Oil Prices to Fall - News and Current Events | futures trading

Go Back

> Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events

How the Situation in Crimea Could Cause Oil Prices to Fall
Started:March 4th, 2014 (09:01 PM) by kbit Views / Replies:102 / 0
Last Reply:March 4th, 2014 (09:01 PM) Attachments:0

Welcome to

Welcome, Guest!

This forum was established to help traders (especially futures traders) by openly sharing indicators, strategies, methods, trading journals and discussing the psychology of trading.

We are fundamentally different than most other trading forums:
  • We work extremely hard to keep things positive on our forums.
  • We do not tolerate rude behavior, trolling, or vendor advertising in posts.
  • We firmly believe in openness and encourage sharing. The holy grail is within you, it is not something tangible you can download.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple, and we will never resell your private information.

-- Big Mike

Thread Tools Search this Thread

How the Situation in Crimea Could Cause Oil Prices to Fall

Old March 4th, 2014, 09:01 PM   #1 (permalink)
Elite Member
Aurora, Il USA
Futures Experience: Advanced
Platform: TradeStation
Favorite Futures: futures
kbit's Avatar
Posts: 5,839 since Nov 2010
Thanks: 3,275 given, 3,321 received

How the Situation in Crimea Could Cause Oil Prices to Fall

Moscow’s aggression in Crimea has markets in a panic and bulls predicting continued increases in the price of oil should tensions endure. Nonetheless, there is a chance that Russia’s Ukrainian incursion could result in the exact opposite effect—a decline in oil prices.

There are two different ways the Crimean crisis could result in decreased prices: a positive supply shock from the American strategic petroleum reserve (SPR) and a negative demand shock from financially crippled emerging markets.

On the supply side, the West is searching for a way to oppose Russian aggression but must tread a fine line between effective resistance and exacerbating what is already a geopolitical powder keg. One potential course of action is hitting Moscow where it hurts—its oil revenue. Economist Phillip Verleger recommends doing just that by opening up the SPR and letting 500,000 barrels per day flow onto world markets.

Verleger estimates that this would be enough to push prices down by approximately $10 a barrel. Oil and gas accounted for 52% of Russian federal government revenues in 2012, and such a drop would cost Moscow almost $40 billion and compress the Russian GDP by approximately 4 percent. Key swing producer Saudi Arabia would have to agree not to cut production to counter declining prices, but Russian support of Syrian President Bashar al-Assad may be just what the Kingdom needs to agree to such collusion.

Declining oil prices could be very disruptive to Russia, as the Crimean action has already proven very expensive for Moscow. Russian equities tumbled 12 percent on Monday, with the MICEX stock index falling approximately $60 billion since Friday. Furthermore, the Central Bank of Russia has burned through over $12 billion in gold and foreign currency reserves since the beginning of the crisis in an attempt to prop up the ruble. Directed economic pain may be enough to push Russia back across the Ukrainian border.

On the demand side, this uncertainty is occurring at a terrible time for emerging markets. Already suffering massive capital flight, the recent turmoil will serve to exacerbate investor fears of riskier emerging markets and Bill Witherell, chief global economist at Cumberland Advisors, forecasts a “general pullback” from equity markets around the globe should the crisis continue. A general pullback from equity would do two things.

First, it will weaken emerging market currencies, increasing the real cost of oil for these countries and thus decreasing oil demand growth. Second, it will more generally hurt emerging market economies and dampen oil demand growth. The IEA forecast that emerging markets would account for more than 100% of global oil demand growth this year (OECD consumption is decreasing). In the absence of expected emerging market demand growth, supply may chase demand it never finds, thus decreasing prices.

While the bulls could turn out to be correct, never discount the possibility of the Russian bear.

How the Situation in Crimea Could Cause Oil Prices to Fall

Reply With Quote

Reply > Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events > How the Situation in Crimea Could Cause Oil Prices to Fall

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Upcoming Webinars and Events (4:30PM ET unless noted)

An Afternoon with FIO trader bobwest

Elite only

NinjaTrader 8: Programming Profitable Trading Edges w/Scott Hodson

Elite only

Anthony Drager: Executing on Intermarket Correlations & Order Flow, Part 2

Elite only

Adam Grimes: Five critically important keys to professional trading

Elite only

Machine Learning Concepts w/FIO member NJAMC

Elite only

MarketDelta Cloud Platform: Announcing new mobile features

Dec 1

NinjaTrader 8: Features and Enhancements

Dec 6

Similar Threads
Thread Thread Starter Forum Replies Last Post
Oil Prices Are in a Free Fall as Economic Worries Spur Selling Quick Summary News and Current Events 0 May 4th, 2012 04:50 PM
Oil Prices Could Follow Gas Prices Down as Demand Decreases kbit News and Current Events 0 April 25th, 2012 10:40 PM
Peak Oil and the Financial Crisis: Where do Oil Prices Fit In? kbit News and Current Events 1 February 26th, 2012 11:46 PM
Oil prices should fall with Gadhafi overthrow kbit News and Current Events 0 August 21st, 2011 07:05 PM
Oil Prices May Fall Below $80 as Foreclosure Weighs: Survey Quick Summary News and Current Events 0 October 18th, 2010 01:40 AM

All times are GMT -4. The time now is 10:31 AM.

Copyright © 2016 by All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts

Page generated 2016-10-23 in 0.08 seconds with 20 queries on phoenix via your IP