Oil dropped over 5% on Monday because Donald Trump decided not to bomb Iran. Investors called this "diplomatic efforts." The rest of us call it not starting a war.
Geopolitical risk premium is Wall Street's term for the extra money people pay when they think someone might blow up the thing they invested in. Turns out when the President says he won't blow up Iran, people stop paying extra for that possibility. Revolutionary stuff.
The same traders who bid oil up last week on fears of military strikes spent this week pretending they knew Trump would back down all along. These are the same people who check their portfolio every eleven minutes and wonder why their hands shake.
Trump called off a planned strike. Oil fell. Causation met correlation at a bar and decided to go home together for once. Retail traders everywhere pulled out their phones to Google whether Iran produces oil and if that matters.
The beautiful part is watching people trade the news like it's information. Trump says he might bomb someone, oil goes up. Trump says never mind, oil goes down. Next week he'll say something else and oil will move again and traders will pretend that one mattered too.
Somewhere right now a guy with a Robinhood account is reading about Middle East tensions and typing "how to trade crude futures" into YouTube. He's about to learn that geopolitical analysis pairs wonderfully with losing money.
The technical picture says oil was overbought anyway. The 50-day moving average doesn't care about Trump or Iran or diplomatic efforts. It just sits there doing math while everyone else performs financial theater.
Monday's drop wiped out gains that never made sense in the first place, which means we're back where we started, except now everyone's pretending they understood the whole time.
Photo by on Unsplash
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