Well, the terror blasts in London seem to have done what months of OPEC hyper-production have failed to: bringing down the price of oil. The attacks precipitated the biggest one-day swing since Operation Desert Storm 14 years ago, prices briefly dipping nearly five dollars to $57.20 a barrel, although they recovered somewhat to still hang at over $60 a barrel, which would have been unthinkable just a year ago. What’s interesting is that markets reacted to the London attacks in exactly the opposite way than they did to other major terror attacks of recent years such as 9-11 and Madrid’s 3-11, which drove prices up. There may be factors other than the London attacks involved in the price plunge, but this still appears a sign of panic in high places. Radical swings almost always are: spikes driven by fear over the security of global reserves, plunges by fear over the stability of the global economy. This from Bloomberg today:
Oil Falls From Record as London Blasts Threaten Economic Growth
July 7 (Bloomberg) — Crude oil, after reaching a record $62.10 a barrel in New York, plunged as terrorist bombs that killed at least 37 people in London raised the possibility of an economic slowdown. It was the biggest price swing in 14 years.
Prices reached their peak at about 5 a.m. New York time amid concern that Hurricane Dennis will reach the Gulf of Mexico and disrupt production as Ivan did last November. A [US Energy Department] report showing rising U.S. supplies of distillate fuels, a category that includes heating oil and diesel, helped push prices lower, along with the terrorist attack.
“The price has clearly driven too high in the last few days and the attack acted as a trigger to sell,” said Michael Lynch, president of Strategic Energy and Economic Research, a Winchester, Massachusetts-based consultant. “The report makes it clear that the refinery system can deal with the alleged distillate shortage.”
Crude oil for August delivery fell 53 cents, or 0.9 percent, to $60.75 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices plunged as much as $4.08 after the London terror attacks. Oil is up 55 percent from a year ago.
Today’s $4.90 intraday move was the biggest swing since the Persian Gulf War in 1991. On January 9, 1991, futures traded between a high of $31 and a low of $23.35 as prices declined from the record set a few weeks earlier on concern that Iraq’s occupation of Kuwait would cause crude oil shortages.
Oil jumped more than $1 in the days after the Sept. 11, 2001, terrorist attacks on New York and Washington before falling for the rest of the year as travel and the economy slowed. Prices have more than tripled since late 2001. Crude oil rose on the day of the Madrid attacks on March 11, 2004.
Bloomberg may be trying to put a positive spin on things; while the above account notes an Energy Department report of rising US supplies of deisel and heating oil, an AP account states: “The weekly report from the Energy Department also showed a large decline in domestic crude oil inventories, which may have kept prices from falling further.”
See our last post on the global oil crisis.