Impact of Osama Bin laden’s Death on Commodities’ Markets

Today’s breaking news about Osama bin Laden being killed in the Pakistani city of Abbottabad has taken the world by surprise. The leader and main face of al-Qaeda, bin Laden was instrumental in the spread of Jihadi outfits throughout the world. His death might be nothing more than a symbolic victory in the short-run, considering the fact that he had been in hiding ever since the American forces attacked Al-Qaeda’s base in Afghanistan in 2001 after 9/11. However, it is bound to have a significant effect on the major commodities’ markets of the world, particularly at the New York Mercantile Exchange(NYMEX).

The price of WTI crude future declined by 0.91 percent to $ 112.89 a barrel in the electronic trading after US President Barrack Obama announced Bin Laden’s death last night, and appears to decrease further when trading resumes in New York today. The most important reason that was driving oil prices upwards was fears of supply cuts due to unrest brewing in the Middle East. Terrorists have in the past attacked oil installations, such as the Abqaid oil producing centre in Saudi Arabia in 2006. Bin Laden had often called for attacks on oil installations in order to harm the West by disrupting oil supplies. With Bin Laden gone, the risk of oil installations coming under attack from terrorist activities has abated, at least for a while. A short term bearish trend is expected in the market, which will lead to lower levels of speculation and reduce the price of WTI and Brent crude futures.

Bin Laden’s death was met with optimism in the major stock markets of the world, since one of the major reasons that have been preventing investors from investing in riskier assets in other countries has been the fear of terrorist activities disrupting the economy. With bin Laden gone, Al-Qaeda and other militant organisations inspired by him have been dealt a major setback. Although there are fears about violent retaliation from these groups, for the moment, investors are taking advantage of the optimism by investing in riskier assets. Consequently, there has been a decline in the demand of precious metals such as gold and silver which are used as safe-havens for investments. The price of silver tumbled by 9% during the aftermath of the announcement of Bin Laden’s death, and is looking set for falling even more.

The recent surge in the price of all commodities at NYMEX was due to a string of weak economic news; rising levels of US sovereign debt, Japan reeling from the massive earthquake which ravaged it, and the civil war waging in Libya were a few of these factors. In the aftermath of Bin Laden’s death, increased investor confidence shall bolster the US Dollar and raise the stock market index. Although the long-term implications of his death are yet to materialize, for the moment, the prices of all major commodities are bound to fall when trading reopens at NYMEX today.