News that the reversal of the Seaway pipeline, which will bring crude from Cushing OK to the gulf coast would start early sent Brent crude to its lowest in 2 months Monday. Refined products in the US fell nearly 2% in sympathy, while WTI managed small gains now that the end of the land-locked supply issue is in sight. RBOB and HO are trading very near their critical support levels, where the contracts bounced more than a dime a week ago.
Financial markets had a very unusual day, with the Nasdaq and S&P finishing the day lower, while the DJIA had solid gains. While that type of action isn’t without precedent, it does stand in stark contrast to the heavy correlations we’ve seen between financial products the past few years.
What has really thrown a wrench into the conventional thinking machine is that many commodities are selling off despite a weaker dollar/stronger Euro. Many are blaming a rapid repatriation of Euros from banks that are desperately trying to shore up liquid capital stores ahead of the anticipated debt rating downgrades. If true, we may end up with a situation like we saw last fall where risk assets decline rapidly as banks remove liquidity from the system. The question becomes what can/will the central banks do to ease these fears.