Ilya Spivak, Currency Strategist at FXCM comments: Risk sentiment drives price action as Libya violence pushes oil prices higher

7 March 2011

“An uneventful economic calendar leaves the door open for risk sentiment to remain the core driver of price action, with shares likely to remain under pressure as escalating violence in Libya continues to push oil prices higher to threaten the global economic recovery.

“Putting the crisis in perspective, Libya ranks only 12th on the world’s top crude exporters’ list, accounting for a mere 1.5 million barrels per day of output.

“Therefore, the situation there is of market-moving significance in terms of shaping investors’ perceptions of what a crisis in the region could look like – bloody and disruptive rather than mostly non-violent and orderly – as had been the case in Egypt and Tunisia.

“To that affect, the path of least resistance for oil prices is likely to continue to lead higher as long as reports bloodshed continue to fill the headlines. WTI crude has jumped above $106/barrel for the first time since September 2008.

“The re-emergence of sovereign risk in Europe is adding to downward pressure on sentiment after Moody’s downgraded Greece’s credit rating once again.”

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