Oil Seesaw Continues

An active night for global markets including a terror attack in Iran, the takeover of Banco Popular in Spain, not to mention the American Petroleum Institute Report that showed a big drop in crude supply but big increases in gasoline and distillates.

Fox News reports that ISIS has claimed its first attack in Iran after suicide bombers and gunmen stormed into Iran’s parliament and targeted the shrine of Ayatollah Khomeini, killing a security guard and wounding 12 other people, with the siege at the legislature still underway. The attack comes just days after Saudi Arabia, the UEA and Egypt cut diplomatic ties with Qatar in part over its dealings with Iran. Talks to ease the tension are being led by Kuwait and the market seems less concerned about a possible breakdown of the OPECX production cut agreement.

Markets were initially rattled on reports that Spain’s biggest bank, Santander, came in and bought the failing Banco Popular for a whopping one euro. The problems with Banco Popular were a worry for markets and after European officials decided the bank was close to being insolvent, they paved the way for the overnight sale. The markets view this as a victory for post financial crisis reforms using private money as opposed to taxpayer money to bail out banks, but we may not be out of the woods yet. 

Stock holders of Banco Popular are left with nothing and bond holders take a big haircut. This reminds me of the attempt to save MF Global by selling them in the middle of the night to Interactive Broker but the sale fell apart when it was determined there was a lot of customer money missing. Reports say that Santander will ask investors for around €7-billion (£6.1 billion) of fresh capital to cover the cost of bolstering Popular holding that lost billions of euros on risky property loans. One wonders if this system would work if many banks were failing, but right now this will be a good test.

Crude oil prices rallied into the American Petroleum Institute (API) report on talk that we would see a big drop in crude supply. That was correct but the increase in gasoline and distillate raised concerns about product demand once again. The API reported crude supply fell by 4.62-million-barrels last week and a twice as large fall as expected 1.56 million barrels drop in the Cushing, Oklahoma delivery point. The API though reported an equally large 4.08 million barrel increase in gasoline supply and a 1.75 barrel increase in distillate supply. The market will now await the Energy Information Admintation (EIA) supply report to decide oil’s next move.