The Iraq crisis has pushed oil prices up some 5% since the start of the militant Sunni uprising. Some blame the risks of regional conflict escalation on today's equity selloff in the US. But Brent oil has since stabilized and some are asking whether this is the extent of the Sunni rebellion impact. Is the "disruption" premium in crude oil markets now fully priced in?
There is no quick solution to the situation in Iraq and we are likely to see violence persisting for months to come. But the equity markets are telling us that the risks of significant energy price increases from here are not likely. The massive outperformance of the energy sector in recent days has almost vanished.
|Blue= S&P500 ETF; Orange = energy index ETF (source: Ycharts)|
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