Brent Crude futures tested $112 per barrel today and is currently attempting to stabilize in that region after a hasty retreat away from $118 per barrel.   Equity markets recovered their bullish posture while the WTI to Brent ratio has contracted back under $19 per barrel.   Brent and the precious metals were outliers today as the risk-on trade returned and the Euro shrugged off the fear trade created by the Italian election results.

Brent was clearly defying the market at $118 per barrel while the Euro was retreating for most of February.  That relationship seems to have stabilized as Brent in Euros is back under €85.5o, close to the long-term average since the QE announcement back in September.   The cheap price of Brent has been one of the few bright spots for Europe as the Euro backed away from the worst fears of the EU unraveling last summer.

But, now with the very real possibility of an Italian government set on defying the ECB and the EC’s mandated austerity and welfare to its bondholders there is, again, a real threat to the integrity of the Euro-zone.  In that scenario the markets would erupt and the flight to cash would be biblical.  Just knowing that the Goldman-Sachs candidate came in last warms my Italian genes to the bone, frankly.

At this point, however, the resumption of the narrative that everything is fine will continue for the next 48 hours until the nonsense known as the ‘sequester’ hits the U.S. Budget.  For that reason I’m expecting some scary stuff to be visited on us which could take the price of Brent down back near $110.