Wednesday, March 09, 2011

Reassessing The Investing Paradigm

So, can oil derail everything?

[socolata-scha1+(16).jpg]

Obama and other leaders are careful and cautious in not wanting to send in the military (once again), but its oil we are talking of, and many of the global democracies would like to see Gadaffi out of Libya, its their chance. Obama would not like to be trigger happy, something if Dick Cheney was in power, he would have sent troops to Libya already. Maybe he is waiting for more countries to "support him in a military operation" because he certainly won't want the US to take the lead again. If much of Europe agrees to do so, we could see a "coalition of armies" which will make any infiltration more a "collective like effort" than a US one. EU faces a massive problem as there will be plenty of displaced people rushing to all of Europe as refugees, which will take a toll on their feeble recover with the additional social cost to their systems.

Key members of OPEC, including Saudi Arabia, Kuwait, the United Arab Emirates and Nigeria, are lifting oil output to push back oil prices, which have soared during the unrest in the Arab states, Tuesday media reports said. The move would address global concerns that the unrest in the Arab nations might interrupt global oil supplies, as well as worries that higher oil prices might send inflation soaring or depress economic growth, reports said. In particular, a production increase at the Organization of the Petroleum Exporting Countries would about make up the shortfall in supplies out of Libya, which is currently wracked by a civil war, reports said. Kuwaiti Oil Minister Sheikh Ahmad al-Abdullah al-Sabah told reporters Tuesday that OPEC was in talks about increasing production but hadn't yet decided to do so.


The bulk of the OPEC members are also in the same pattern of domestic unrest, and its in their interest to NOT let oil price surge because further climbs will derail the recovery in the US and Europe, making the latter group more prone to military action - something the majority of OPEC big boys do not want to see happening. If it happens to Libya, it would encourage the dissidents in their own countries even more. So, we have OPEC there looking out for ways to ensure oil does not get too high. Expect OPEC to increase production release soon if Libyan crisis continues.

Britain and France said they were seeking U.N. authority for a no-fly zone over Libya, as Muammar Gaddafi's warplanes counter-attacked against rebels and aid officials said a million people were in need. Rebels swiftly rejected an olive branch offered by an associate of Gaddafi, and fighting escalated around a key oil port. The aging autocrat warned that if he fell thousands of refugees would "invade Europe." With civilians surrounded by forces loyal to Gaddafi in two western towns, Misrata and Zawiyah, fears grew of a rising humanitarian crisis if the fighting continued. U.N. aid coordinator Valerie Amos said more than a million people fleeing or inside the country needed humanitarian aid.

The United States and its NATO allies edged closer Monday to formulating a military response to the escalating violence in Libya as the alliance boosted surveillance flights over the country and the Obama administration signaled it might be willing to help arm Gadhafi's opponents. Europe, meanwhile, kick-started international efforts to impose a no-fly zone. What this all means is that OPEC will have to act soon to buy time.

[socolata-scha1+(2).jpg]

These are the options:
a) Gadaffi admits defeat, everything is well again, markets rise
b) Gadaffi hangs on by killing more Libyans daily, the human casualty will prompt the US and NATO allies to act with strong global support, once they move in, we can expect a swift demise for Gadaffi, markets rise
c) OPEC acts to lower price of oil which may delay the US and NATO from military action, but the morality of not acting when civilians are being massacred will force the hand of the US and NATO. How soon? I say, Gadaffi has less than 1 week to surrender, either way, markets should rise soon

[socolata-scha1.jpg]

I think the global markets have over reacted on the downside because we are really talking of oil in the $105-110 range. Yes, it will hurt some industries more but its not debilitating so. Remember we were there at $125-135 sometime back, how bad was it then? The above picture would point to a speedy resolution one way or another. I would side towards the optimistic bunch of investors willing to go long now.

1 comment:

M said...

Could it be that QE was not factor in where it could lead to this? More money is flowing and speculating in the market than before.