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A Reassessment of the Risk Environment Leads to Broad Selloff

Minneapolis, MN | March 29, 2023 | By: Steve Sinos, Blue Lacy Advisors, LLC

Three Things

  1. Fundamental expectations haven’t changed, but the probabilities of expected outcomes may have - leaning more toward a recession.

  2. Even if that isn’t the case, last week’s events accelerated the trend of rising trade costs from tighter credit, possibly fueling technically driven sales.

  3. Refined products held up well compared to crude. Gasoline cracks are starting the season wider than in the last decade.

Risk Assessment

How can the failure of a bank cause oil prices to drop 12%? The short answer is risk. Contrary to the famous line, the economy isn’t built on trust. The economy is built on the cost of carrying risk. In energy markets, this is expressed in cash margin rates, the cost of carrying inventory, credit/trade finance for physical trade, and (of course) borrowing costs for capital projects. All of the costs associated with managing trade have steadily increased over the last year, and the previous week’s events accelerated this trend. As a result, risks rose across the financial system, which had knock-on effects that resulted in a broad market selloff.

*This summary is based off March 19, 2023

A free excerpt, such as this one, will be published on a delay periodically. This is an excerpt from Blue Lacy Advisors, LLC's (“Blue Lacy”) weekly commentary for clients, which is based on a collection of models, research/analytical subscriptions, and bespoke work. Each week Blue Lacy explores how market drivers included in these analyses might affect or be used in clients' planning, budgeting, and execution of strategy. Call Blue Lacy to make an appointment today!


Meet the Author!

Phone: +1-832-413-3124

Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.

He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.

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