Drone attacks on two Saudi Arabia oil production facilities over the weekend sent U.S. and global benchmark Brent Crude prices soaring on Monday over $8 a barrel. It was estimated that the attacks cut 50% of Saudi Arabia’s oil production, equaling 5% of the global production. That oil price on Monday influenced the ag commodities heavily, sending them higher as well. Jim Bower of Bower Trading in Lafayette says the situation remains volatile, but prices are now lower.
“The situation in the Middle East has been a powder keg and it remains so, so you do have to monitor it. It seems like most of the positive news, as far as price increase, has already been dialed in and now we’re self-correcting backwards because things seem to be settled down pretty dramatically, pretty quick. Much quicker than what they thought on Saturday and Sunday.”
The lack of a military response to the attacks and the fact that Saudi Arabia now says they’ll have production fully restored by the end of the month has lowered crude prices and ag commodity prices have followed.
With no trade news or immediate weather concerns for crops, ag commodities are following the lead of the stock market and crude prices. Bower says this market has been incredibly difficult to trade.
“This market is characterized by a different set of rules, market action, history…it has kind of a sterile feeling to it, controlled, in my opinion, to some degree by the large hedge funds and/or the major commercials because the movements are choppy. One day the market looks okay. The next day it falls back off.”
Reports are that the Fed is eyeing another interest rate cut, something that is supposed to spark the economy. Bower has his concerns with the strategy.
“These lower interest rates are supposedly good for the economy, but the problem that I have with that is intermediate to long term, if we run into a recession or economic downturn, do we have enough bullets to bring the markets back to the situation by lowering interest rates? They’ve already lowered them so much that we don’t have very many bullets left in our pouch.”
October U.S. crude reached $63.38 a barrel on Monday before retracing. It’s now trading in the upper $50 range.