Bin Laden's Death Offers Little Direction for Commodities Players
The surprise announcement late Sunday that Usama bin Laden had been tracked down in Pakistan and killed by U.S. special forces is being viewed largely as a symbolic event unlikely to have a dramatic impact on the price of oil or other important commodities.
Like many symbolic events, the immediate impact was sharp.
Investors around the world had an initial knee-jerk reaction Monday that could be summed up as follows: the world is a safer place with bin Laden dead. Oil and gold prices fell accordingly.
Presumably with bin Laden dead the threat of global terrorism – especially terrorism targeting the U.S. – would be reduced. That in turn would reduce so-called “risk factors” on important commodities like oil.
In early trading Monday, oil prices fell more than $1.40 a barrel to about $112.50, and gold fell more than $11 an ounce from its near-record highs. Meanwhile, all that diminished risk helped the dollar surge off three-year lows.
But that was temporary. Prices were rising by mid-day.
“We got a knee jerk reaction,” said Darin Newsom with commodities research firm Telvent DTN.
Newsom said the response in commodities markets to bin Laden’s death could go in one of two directions: the threat of terrorism will “diffuse a bit” and prices will ease.
“We saw that early,” he said.
Conversely, bin Laden’s death “intensifies the situation” and leads to reprisals that could strain distribution channels and crimp energy and food supplies, Newsom warned.
The reality is probably less linear, however. The long-term price of oil will likely continue to respond to individual events as they play out on the global landscape, not least a civil war in Libya the turbulent political environment across the rest of the Middle East.
Bin Laden’s death “was an important event, but not really significant to the long-term direction of energy prices,” said Newsom.
Bin Laden’s stature is widely viewed as diminished since the immediate aftermath of the Sept. 11, 2001 terrorist attacks that killed some 3,000 Americans in New York, Washington, D.C., and Pennsylvania.
Consequently, his death won’t have an immediate, tangible impact on terrorist plots worldwide. Al-Qaeda, the terrorist network bin Laden founded and oversaw for two decades, has splintered and its regional leaders operate with more autonomy as bin Laden spent the past decade on the run and in hiding from U.S. authorities.
So it’s uncertain whether his death might disrupt ongoing plans for future attacks or spur reprisals.
“Before the market gets too excited, it is possible that the risk for supply has gone up. Al-Qaeda has been a threat to oil supply and fears of reprisals could support this market, and despite short term positive feelings about this, the threat has not gone away,” said Phil Flynn, a commodities analyst with PFG Best.
Where bin Laden’s death might have the most significant long-term impact is U.S. politics.
The two previous presidential administrations spent considerable time and resources trying to capture bin Laden. Their efforts were unsuccessful and those failures are viewed as blemishes on the historical records of Democrat Bill Clinton and Republican George H.W. Bush.
Obama, at least temporarily, will bask in the glow of this victory and his approval ratings, which have plunged in recent months as the U.S. economy has struggled to gain momentum, will undoubtedly surge.
“The operation will boost Obama's drooping popularity and give him a springboard from which to launch his 2012 re-election campaign,” an IHS Global Insight analyst wrote in a note to clients.
Still, bin Laden’s death hardly guarantees a safer world. As the IHS analyst noted, immediately after Obama's announcement late Sunday, officials at the Department of Homeland Security warned of an increased, rather than decreased, risk of terrorist attacks.