Dicker: What Is Going on With Oil?
NEW YORK (TheStreet) -- I was talking to Joe Deaux today about Syria and the trajectory of oil prices. President Obama's decision going into the Labor Day weekend to seek congressional approval for limited strikes on Syria had a damping effect on oil prices overnight on Tuesday, dropping West Texas Intermediate crude to close to $106 a barrel.
But those price drops were very short-lived. Oil has rallied back significantly during the trading day on Tuesday, moving prices back to close to $108 a barrel.
What is going on? With the prospect of a limited strike delayed at least until the vote is taken on Sept. 9, it would be logical to expect that oil prices would go down and stay down, at least for the next week. But prices have instead managed to rebound quickly.
One point that needs to be made is that the price action of oil is not solely related to Syria and the probability of a U.S. strike. There are other geopolitical pressures in the Middle East besides Syria adding to the strength and resilience of the oil trade.Even more so, there is a financial pressure exerting itself on oil. With the stock market continuing to look weak and with bond prices getting hammered and the 10-year Treasury getting very close to 3%, we have a free fall in financial assets that has many managers and individual investors looking for a safe haven -- a capital diversifier in hard assets. That is largely what has inspired the rally in gold, still underperforming in 2013 compared to any of the last eight years, but now again over $1400/oz. after dipping slightly under $1,200. Oil has become the preferred hard asset outside of gold for these investors. As long as the geopolitical pressures of the Middle East remain and as long as the rest of the capital markets continue to trade poorly, you can expect oil's risks to remain firmly on the upside. Until further notice, every rally needs to be bought. I talk more about this with Joe in the video above. Follow @dan_dicker This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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