SEC Charge Against Goldman has Volcanic Impact on Energy Markets: Guest Article from OilPrice.com
Oil Market Summary for 04/12/2010 to 04/16/2010
Oil prices plunged on Friday after the U.S. Securities and Exchange Commission charged Goldman Sachs with fraud in its marketing of certain subprime mortgage securities, amid a general sell-off in financial and commodity markets.
The allegations against one of the biggest market makers in virtually every markets dampened speculation heading into the weekend. Much like the volcanic eruption in Iceland spewed a cloud of dust over northern Europe that grounded all air travel, the SEC charge cast a pall over financial markets.
The May contract for West Texas Intermediate, which expires next week, settled down $2.27 or 2.7% at $83.24 after briefly dipping below $83 in the wake of the SEC announcement. The benchmark contract settled at $84.92 a week earlier.
Goldman Sachs had no immediate comment. Prices had been drifting lower in equities and other markets prior to the announcement, but fell sharply afterwards, led by a plunge of more than 10% in Goldman shares.
Some analysts speculated that prices could rebound on Monday once the dust has settled, but market participants remained uncertain about the long-term impact of the SEC charge on Goldman’s business and on that of other major banks.
In the past, Goldman has rejected charges of misleading investors when it sold securities that it subsequently shorted in its own trading, asserting that that is the role of a market maker. Goldman is one of the biggest participants in the energy futures markets.
Oil prices started the week soft, but firmed up after Wednesday’s inventory report from the U.S. Energy Information Administration, which showed a small decline in crude inventories after 10 successive weeks of increases.
An unexpected decline in April consumer sentiment reported on Friday, however, led to new doubts about the strength of the economic recovery and depressed prices. The market had been expecting a reading of 75 after 73.6 in the previous month, but instead the index came in at 69.5.
The inventory report on Wednesday pushed oil prices up 2.1%, to $85.84. But the monthly outlook from OPEC released the same day actually revised its forecast for 2010 demand for OPEC oil downward by 135,000 barrels a day from the previous month, to 28.8 million barrels a day. The group’s expectation for the overall growth in oil consumption also trails that of other analysts.
By. Darrell Delamaide for Oilprice.com who offer detailed analysis on Crude oil, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com
Al Fin comment: The long term effect from attacks on Goldman depend upon how far the Obama administration wants to carry the attack. So far, the SEC announcement can be seen as a shot across the bow -- and a preparation for passing Senator Dodd's radical financial reforms. If Obama can get what he wants from the financial sector without having to take Goldman to court, he will move on to the next item on the agenda.
Of course, Germany and other "wounded parties" may not be so quick to let go of the attack. Obama may have given overseas sovereigns the opening they needed to go after large US financial interests, starting with Goldman.
Labels: energy economics