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Oil Traders Misread Tweet, Spike In Oil Prices Follows

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Oil well (photo by John Hill)

Oil well (photo by John Hill)

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Look before you leap, our grandmothers used to say. That calm, orderly, sage advice could've come in handy yesterday, when traders panicked about the price of oil after misreading a tweet.

Yes, a tweet.

The tweet in question came from the Israeli Defense Forces:  

Oct. 10 #YomKippur73: Israel Air Force bombards airports in Syria to prevent Soviet weapons reaching the Syrian Army http://t.co/tKnMzYjgFF

— IDF (@IDFSpokesperson) October 10, 2013

At first glance, that might seem alarming. After all, Syria has been engaged in a bloody civil war for two and a half years, which has escalated tensions with Israel. And Russia has been a key supporter of Syria's Al-Assad regime. Bottom line: the possibility of a Syrian/Israeli war looms large.

That said, knee-jerk traders should've been tipped off by at least two things:

1. Yom Kippur was weeks ago.

2. The Soviet Union is ancient history.

Combine those two, and it becomes pretty clear that the IDF's tweet is intended to commemorate something that happened in the past. In this case, that something is the Yom Kippur war, which took place in 1973. (Thus, the hashtag.) 

Unfortunately, in the fast-paced world of investing, cooler heads didn't prevail. Investors saw the tweet and rumors quickly began to spread that the Syrian/Israeli conflict had finally bubbled over. Traders assumed that oil production would be compromised, which pushed the price of oil higher. Within an hour, it had jumped more than $1, from $110.40 to $111.50.

What's interesting is that, even after investors realized their mistake, oil prices remained high. According to Reuters, "Although traders quickly realized the historical nature of the Tweet, oil prices maintained their gains, supported in large part by hopes of a breakthrough in U.S. debt discussions and earlier anxiety over political stability in Libya." Looks like traders got tweet-drunk and wanted any excuse to keep the party going. Within three hours of the IDF's tweet, oil prices hit $111.74 per barrel -- the highest price seen in a month.

Yesterday wasn't the first time something like this has happened. And you can bet a sizable chunk of change that it's going to happen again.

This is why we can't have nice things. 

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