Oil: Where is the spare capacity?

This morning’s note from UBS’ Andy Lees addresses something about which I am sceptical regarding the escalating Libyan conflict: global spare oil capacity. I am in the same camp with Jeremy Grantham. Call it peak resources, peak oil, the end of cheap oil, whatever – the fact is there is a finite amount of natural

High Oil Prices Unlikely To Go Away Anytime Soon

Oil prices are moving higher today, due largely to news about Libya and OPEC. Algerian Oil Minister said that there was no shortage in the global oil markets and that an emergency OPEC meeting is not needed now. It also appears that optimism over a quick resolution to fighting in Libya was overdone, and that

Protracted Oil Spike Possible As Libya Burns

Hugo Chavez as peacemaker? Color us skeptical. Chavez is hardly an impartial third party in this conflict, as he has cozied up to Qaddafi over the years. As such, we would not expect opposition forces to be very open to any sort of Chavez intervention. Media is reporting that the Libyan government has accepted Venezuela’s offer to mediate, but which government? Given the civil war now under way, Libya no longer speaks with one voice, as underscored by the countless defections by Libyan diplomatic officials and military to the opposition. Rather, it seems some sort of multilateral solution will be needed via the UN or perhaps the Arab League. A no-fly zone over Libya is being contemplated in order to prevent bombing of civilians and opposition forces, but international opinion over this option is divided. China and Russia (members of UN Security Council) have expressed opposition to the no fly zone, as has Turkey (member of NATO)

The Libyan Crisis: Where Are Oil Prices Going?

By Marin Katusa, Casey’s Energy Report The oil picture is always complex, but right now things are about as complicated as they can get. The unrest in Egypt has settled for the moment, but the future there is not yet clear as the military takes control on promises of free elections. Tensions are rising in

From Dublin to Tripoli

The Absolute Return Letter, March 2011 By Niels Jensen “Experience is the name everyone gives to their mistakes” Oscar Wilde A remarkable month Two remarkable events unfolded during the month of February. One cleared the front pages all over the world. The other one barely got a mention – outside of its home country that

March Madness: Policy Risks for Global Investors

If you thought this year was off to a challenging start for investors, fasten your seatbelts. March could very well turn out to be the most important month of the year. This does not mean there is easy money to be made or low-hanging fruit that can be picked.

To the contrary, the event risks are such that even the most insightful investors may be hard pressed to have much market conviction. Hugging benchmarks and defensive strategies will likely be a preferred strategy of many money managers. At the same time, understanding the significance and the meaning of the events may grant investors insight into the investment climate in the period ahead.

The Big Interview with Daniel Yergin

Daniel Yergin is the author of the Pulitzer-Prize winning book ‘The Prize‘, a stellar run through of the oil industry that is on Credit Writedowns’ recommended reading list. Below is a twenty-minute interview of Yergin by the Wall Street Journal’s David Wessel. Yergin discusses the recent uprisings in the Middle East and what they mean

Rosenberg bullish on energy stocks, cautious on growth due to oil shock

Earlier in the week, David Rosenberg wrote that he is bullish on energy stocks due to the exogenous shock that tensions in the Middle East are creating in the energy complex. However, this is not a bullish story for overall U.S. growth or for business profit margins. In the Bloomberg video below Rosenberg tells Margaret

Why The Mid-East Turmoil Is A Big Drag On Economic Growth

The upshot of all this is that oil prices will probably remain high and could very well rise significantly even from current levels. For the U.S., studies indicate that every $1 rise in the price of a barrel of oil is about equivalent to a 2.5 cent increase in a gallon of gas. Oil prices have already jumped about $10 a barrel since the start of the crisis and $22 since November, translating into an eventual 55 cent a gallon rise in the price of gas. Since every 1 cent rise in a gallon of gas costs consumers about $1.2 billion the increase to date will cause a $66 billion rise in spending for gas alone alone without even including the gas components in the price of such items as airline tickets, express mail and anything that is transported by truck. This is virtually the same as an increase in taxes since it means less money available for spending on discretionary goods. When we consider the possibility of even further increases in oil prices and then add in the prospective rise in food prices, it is easy to see the highly negative effect on economic growth in the period ahead

Bread and Circuses: Reform Saudi Style

By Marc Chandler The time tested way to dampen popular unrest is to provide food and entertainment to the masses. The problem of course is that sometimes the funds are lacking. In Kuwait and Saudi Arabia, for example, this is not the case and the government’s have been "generous" in providing relief. Given the impact

Saudi Arabia Tries To Calm Oil Markets

We note that uncertainty regarding potential oil supply disruptions is in a sense higher now than it was during the first and second Gulf Wars. Then, it was pretty much a foregone conclusion that Saddam would be defeated and oil facilities eventually repaired and output restored. Now, markets are unsure how long and how wide potential output disruptions will spread. Will Iran and Saudi Arabia be swept up in the contagion? How long will it take Libya, Egypt, and others to find political stability in the absence of the old leaders? These and other questions are much more open-ended, and are likely to keep a significant risk premium on oil prices for much of 2011. While EM currencies have stage a nice rebound today, oil prices remain elevated and we believe EM remains vulnerable to further bouts of selling. Eventually, EM should decouple but we think that it’s too early to sound the “all clear” signal yet.

Tensions in Libya Batter Risk Appetite

The US dollar is broadly stronger this morning as geopolitical tensions in Libya and the Middle East prompt demand for safe haven securities. Indeed, the dollar, yen and Swiss franc are all higher as the reboot of risk-off has driven a large position squeeze as investors leveraged for growth in higher-yielding currencies flock to the greenback. The euro retraced some early session losses on the back of hawkish ECB rhetoric yet is likely to meet resistance ahead of $1.3685. Sterling, meanwhile, remains on the defensive after the pickup in risk aversion hampered buying momentum, with the tensions in the Libya likely to keep the dollar bid. The dollar slipped under the ¥83.00 area as safe haven offset Moody’s debt concerns. The New Zealand dollar fell to a two-month low, dropping nearly 2% to $0.745, after an earthquake in Christchurch altered the outlook for monetary policy, while CAD is likely to benefit from positive retail sales.

Global equity markets are broadly lower as the turmoil in the Libya dampens risk appetite