The oil price has skyrocketed over the past few months. The finger has been pointed at the troubles in Libya and claims of supply disruptions have dominated the press. However, are these claims grounded in fact or are we watching yet another sentiment driven bubble? What are the issues we should be aware of and how should we best invest in the face of such turmoil?
Expectations are often more damaging than reality
Libya's contribution to global oil production is in stark contrast to the column inches it has been awarded in the press. As quoted by the National Journal, the country produces around 2% of the world's oil. OPEC (Organization of the Petroleum Exporting Countries) has claimed that they have managed to "accommodate most of the shortfall" and instead attribute the rise in the oil price to fears of a shortage rather than any genuine supply issues. Oil reached a 2.5 year high last Friday . This is against a flattish demand side dynamic. Paris-based International Energy Agency and the U.S. government's Energy Information Administration left fuel demand growth for this year unchanged and OPEC only raised their forecast by a relatively small amount (to 87.9m b/d from 87.8m b/d) .
EU Sanction: A further boost for the oil bulls
On Tuesday, the EU extended sanctions against Libya to include energy companies, freezing assets in an attempt to force leader Muammar Gaddafi to relinquish power. Phrased another way, by the German Foreign Minister, this is a "de facto embargo on oil and gas" . Approximately 85% of exports are for delivery to Europe and importers will now have the task of finding potentially more distant and/or expensive alternative sources.
The pent-up downside risk
Nevertheless, many are not paying attention to the downside risk to the oil price as we move forward. Libya has Africa's largest proven oil reserves but 75% of the country's petrol needs are met with imports because of limited refinery capacity . Any improvement on this front, if a regime change is eventually secured, could therefore significantly reduce imports and boost global supplies.
Is water the next oil?
In addition to oil reserves, one asset belonging to the Libyan government which is rarely mentioned is an ability to bring water to the desert. With the largest and most expensive irrigation project in history, the $33bn GMMR (Great Man-Made River) project, Libya is able to provide 70% of the population with water for drinking and irrigation . The United Nations estimates that by 2050 more than two billion people in 48 countries will lack sufficient water, making this an enviable asset indeed .
How can the US pay for the Libya intervention?
It is interesting to note, with all the claims being made that the intervention is oil motivated that, Libya has another form of 'liquidity'. According to the International Monetary Fund (IMF), the country's central bank has nearly 144 tonnes of gold in its vaults ...
How to best invest: Retain context
The tide is starting to turn, Goldman Sachs has called the top for commodities in the near-term and oil fell by 4.5% on Monday and Tuesday alone (Source Bloomberg) . With this amount of volatility, short term noise can sometimes overwhelm. For a long term investor, looking for steady and stable returns, an ability to cut through the sentiment (whilst acknowledging it's importance in driving returns in the shorter term) is valuable. Often many factors are at play and it will 'pay dividends' to be well-informed as they become wider known and priced in by the markets. Knowledge may be king but preparation will come up trumps.
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"Several writers have noted the odd fact that the Libyan rebels took time out from their rebellion in March to create their own central bank -- this before they even had a governmentÂ. "
"Robert Wenzel wrote in the Economic Policy Journal:
'This suggests we have a bit more than a rag tag bunch of rebels running around and that there are some pretty sophisticaÂted influencesÂ.'"
"CNBC senior editor John Carney, who asked, "Is this the first time a revolutionÂary group has created a central bank while it is still in the midst of fighting the entrenched political power? "
"...a 2007 "Democracy Now" interview of U.S. General Wesley Clark (Ret.). In it he says that about 10 days after September 11, 2001, he was told by a general... they planned to take out seven countries in five years: Iraq, SYRIA, Lebanon, LIBYA, Somalia, Sudan, and IRAN." (caps added)
"What do these seven countries have in common? ...none of them is listed among the 56 member banks of the Bank for InternatioÂnal SettlementÂs (BIS). That evidently puts them outside the long regulatory arm of the central bankers' central bank in SwitzerlanÂd."
More here: http://wwwÂ.opednews.Âcom/articlÂes/Libya-AÂll-About-OÂil-or-A-byÂ-Ellen-BroÂwn-110414-Â179.html#cÂomment3230Â65
The rebels are inefficent, but they're trying.
Waiting for the flower greetings too.
They are patriotic to the Empire and realize that their privileged and pampered employment as the “people’s representatives” can be quickly ended if they resolutely defy the war makers and their mass media propaganda machine.
It's always the classic Liberal attacks against the same people.
What is wrong Liberals in the Economic side failing to mention:
Quantitative Easing
Graphing the M3
PIIGS
MUNI Bonds
Failing to extend Bring Back America Bonds
JPM Chase and Silver
GATA and claims of price manipultation
The USD being replaced as Global Reserve Currency
.......and therefore its death.
Liberals, you guys can site what you want to happen, or sit down objectively and view the likely COAs. Blame doesn't count for anything here, its the end result.
America doesn’t much, if any oil from Libya anyway………….
__________
YES, but it’s a world market…………..!
If Parts of Europe can’t buy oil from Libya anymore, then they have to buy it from somewhere else…..
World oil production has been flat since 2005……
World supply is NOT increasing, it’s been flat since 2005….. (ACCORDING TO EIA, and IEA)
If Europe now has to buy from other suppliers….., that’s going to drive up the price for everybody……..
OIL IS FUNGIBLE……..!
each had a dollar and a quarter
Jill came back with two and a half
do you think they went up for water?
http://blogdredd.blogspot.com/2011/04/corp-germ-corp-seed-corp-monster-4.html
http://atimes.com/atimes/Middle_East/MD14Ak02.html
The article starts:
"Libya all about oil, or central banking?
By Ellen Brown
Several writers have noted the odd fact that the Libyan rebels took time out from their rebellion in March to create their own central bank - this before they even had a government. Robert Wenzel wrote in the Economic Policy Journal:
I have never before heard of a central bank being created in just a matter of weeks out of a popular uprising. This suggests we have a bit more than a rag tag bunch of rebels running around and that there are some pretty sophisticated influences.
Alex Newman wrote in the New American:
In a statement released last week, the rebels reported on the results of a meeting held on March 19. Among other things, the supposed rag-tag revolutionaries announced the "[d]esignation of the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and appointment of a Governor to the Central Bank of Libya, with a temporary headquarters in Benghazi."
Newman quoted CNBC senior editor John Carney, who asked, "Is this the first time a revolutionary group has created a central bank......"
and ends
"....If the Gaddafi government goes down, it will be interesting to watch whether the new central bank joins the BIS, whether the nationalized oil industry gets sold off to investors, and whether education and healthcare continue to be free."
She also talks about the countries the US planned on attacking after 9/11.
Another provocative bit of data circulating on the Net is a 2007 “Democracy Now” interview of U.S. General Wesley Clark (Ret.). In it he says that about 10 days after September 11, 2001, he was told by a general that the decision had been made to go to war with Iraq. Clark was surprised and asked why. “I don’t know!” was the response. “I guess they don’t know what else to do!” Later, the same general said they planned to take out seven countries in five years: Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran.
www.zerohedge.com
Probably the best source of what is going on. If you get your Business/Financial info from any Political Blog, you have issues.