what longer-term effect the Russian attacks on Georgia might have for energy markets

The Sept NYMEX crude oil contract made a new low and settled at $115.20 on Friday, down $4.70 on the day and the lowest since May 1. See the chart. After the Russia-Georgia story got more headlines over the weekend, it gained to a high of $116.90 overnight in electronic trading, and is quoted at $116.05 as of 11:17 am in London. We are inclined to think that, like currencies, oil is now being dominated by the technicals. Note that the 200-day moving average is $111.76. Adjusting for varying ways to measure the 200-day (ours is based on the Reuters continuous contract), we see $111-112 as the critical level. A breakout under there spells another big drop to (say) $80-85. As with currencies, though, we must expect and accept a corrective bounce upward.

This week could be when we get that, but keep the faith—once a bubble is burst, it tends to break hard.

Nobody knows what longer-term effect the Russian attacks on Georgia might have for energy markets.

Georgia doesn’t produce oil and gas itself but is the location of a major pipeline.

The FT reports that the “Baku-Tbilisi-Ceyhan (BTC) oil pipeline commissioned in 2006 has brought a new source of high-quality oil into the Mediterranean to compete with Russian supplies.” It transports 1 million bpd. A report late yesterday that the Russians had bombed the pipeline turned out not to be true. In any case, the price of oil barely budged on the story overnight, suggesting that it will not be a factor in the global price of oil and gas. One commodity expert said there might be an effect on the euro, since it’s Europe that takes the bulk of these exports.

But oil is a global market, oil being “fungible” (one barrel is pretty much the same as every other barrel).


Bloomberg reports that “Georgia is a key link in a U.S.-backed southern energy corridor that connects the Caspian Sea region with world markets, bypassing Russia. The Baku-Tbilisi-Ceyhan pipeline ships Azeri Light crude, which is typically priced based on the Brent Oil contract… ‘Brent hasn't really narrowed to Nymex futures so it hasn't really affected supplies too much, but if there's a real prolonged disruption, then Brent may get a kick up…The European refinery maintenance season is also about to start so demand for crude may also drop,’” said an oil market analyst.

Meanwhile, the fire on the pipeline in eastern Turkey was put out and we will know the damage in the next day or so.

It has to cool down.

Bye for Now

Barbara Rockefeller