Thursday's Market Minute: The Forgotten Headline: "Putin's Nuclear Threat"

Yesterday was probably one of the busiest news days I’ve seen in a long while, and if you were like me waking up, you may have thought the markets would’ve been down even before the FOMC rate decision. Vladimir Putin issued a proclamation that Russia is planning a mobilization of 300,000 additional troops in Ukraine and made some “threats” of nuclear conflict with the West. 

Natural gas (/NG) saw a brief spike before selling off, Brent Crude (/BZ) had a similar reaction, and the grains are so focused on harvesting yields at this time of year that a seasonal price increase is to be expected, but volume was normal throughout the session. Lockheed Martin (LMT), Raytheon (RTX), and Northrop Grumman (NOC), all spiked in early trading yesterday before they even sold off with the broader market. So, the question is, does this conflict have any market impacts anymore?

When Russia invaded Ukraine, oil prices spiked 41% on the fear of tightened supply, and we are seeing the crisis unfold right before our eyes. Producers started positioning themselves net long in the futures market according to the CFTC’s Commitment of Traders Report. Trade alliances rapidly shifted to ensure supply of pretty much any major energy source. Abandoned nuclear reactors, coal power plants, and even wood burning energy resources came back to life in preparation for a rough winter.

But now, an announcement like yesterday is a blip on the radar. The implied volatility associated with the war has since faded, leaving long energy traders questioning if the trade still has legs for further upside. Long positioning from producers is starting to increase, and short positioning is slowly declining for natural gas: a setup that is not only associated with global economic slowdown fears, but also a signal that supplies are increasing, documented by the U.S. Energy Information Administration.

As the saying goes, “supply shortages can turn into gluts” – we may be seeing that happening within the energy space.

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