Oil Price Surges Once Again On Turkey Vote To Invade

It's all about the Middle East now, as oil prices lunged forward once more on news that Turkey voted to make a military venture out of Northern Iraq in pursuit of rebelling Kurds. The AP article on topic reads:

"Oil prices surged to a new record of $89 a barrel Wednesday after Turkey's parliament authorized an incursion into northern Iraq in search of Kurdish rebels. The vote overshadowed a U.S. government report that crude oil and gasoline inventories overall rose more than expected last week."

Crude inventory and supply reports are no longer driving the bus. This means that the markets are now highly sensitive to slight changes in the news situation in and around Iraq. Ordinarily, economic data that are market specific act as the prime movers for price fluctations in any given market (i.e. gold supply and demand data move the gold market along with the U.S. dollar).

But once the primary buyers and sellers (collectively simply dubbed "big money") perceive that some one particular news item supercharges the pre-eminent (i.e. institutional) trading interests, everyone else in the market follows suit. These are the typical trends one can observe as commonplace over the past 5-10 years in the several markets most given to price flux.

Unfortunately, the motto "buy on the rumor, sell on the news" is difficult to track -- although it amply sums up the situation -- since rumors are nebulous and sometimes many and conflicted. The ones who do well in such markets are the spread traders, who know what they are doing. Spread trading consists in buying both the up and down positions (with options, this means buying BOTH puts and calls) at a specific distance from the current price, and then dropping the unprofitable leg of the trade, once the price direction is identified. Then they simply let their upside profit run, closing out the profitable trade when it yields a certain percentage gain from the outset of the trade.

Trend or "momentum" trading is more risky (here, you simply anticipate an upward or downward momentum of the commodity or security of interest), and buy in with a specified exit price trigger already in place. This is strictly short-term trading which limits exposure by identifying a fast moving trend; the trader then gets in, holds only briefly for a specific profit differential (say, a 5% gain on his investment in one day, or 10% in two days), and he exits, not caring what happens to the price next.

This is targeted trend-riding. Some professional day-traders do this with success also (These people are a different breed -- they have steel coil for nerves, and some (I suspect) live on a steady diet of tums.

In any case, oil and gas are now a one-horse show. It's an Arabian horse. And let's hope it doesn't get shot up in Iraq -- unless, of course, you are taking the speculative side of the trade.