Sell the News: Oil Falls as Mid-East Troubles Escalate

Last Thursday, news arrived that US client state Georgia had invaded the predominantly Russian breakaway region of South Ossetia, and we also learned that two more carrier groups were headed for the Persian Gulf.

You might think that open warfare in the petroleum-rich and strategically important (think pipelines) Caucasus and additional preparation for a potential bombing of Iran would put an end to the slide in oil prices. But you would be wrong. Oil lost $10 on the week and closed at a 4 month low.

Does this tell us that the odds of war with Iran did not actually increase last week? Or that the conflict has already been priced in for more than a year? It is remarkable that even these heady developments could not make up for the shift in trader psychology as demand slacks with the global economy sputtering towards stall speed.

It just goes to show that there is no money in buying the news and no sense in trying to explain away day-to-day price movements by the headlines or changes in ‘fundamentals’.

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