02-23-2011 09:27 AM
Nomura securities analysis that just the loss of output from Libya and Algeria means crude at 220. Take it for what it is worth.
Of course the real question, then, is what happens to "risk assets" as the Fed has run interference for the whole world to be long equities and commodities and short the USD.
Another thing to worry about, Saudi Arabia next?
Could make for a very interesting planting season.
Nothing could surprise me but I wouldn't be at all shocked by a period of relative calm. The PTB has put the fate of the nation of the Fed asset reflation play and won't go gently.
02-23-2011 11:15 AM
Pretty big 'IF'.
Let's say that things become so messy for logistics and control that oil stops flowing in LIbya. No matter who takes control pumping oil would be a high priority. It is a national asset no matter what goes on, so destroying facilities would not be likely.
Oil will be pumped.
02-23-2011 11:36 AM
I've got to agree. Oil is the golden goose in the Middle East. It would take a complete baffoon on either side of the aisle to even think about killing the golden goose. With everything that went on in Egypt, the Suez Canal didn't miss a beat. The longer things play out the better the chances of oil hitting $220, but I don't think it will be there long. If more countries see uprisings, the fear factor could definitely take us beyond all time highs. However, it should be short lived as no matter who is in power once the dust settles they will want to keep the golden goose laying eggs.
02-23-2011 05:11 PM
Unfortunately some leaders in the middle-east have a higher priority than making money. It's my understanding that Iran's leader wants to usher in the end of the world along with the 12th Imam or some such nonsense.
With that type of mindset the rules we play by go out the window.
02-23-2011 05:34 PM
It only takes one well aimed RPG round in Saudi Arabia to send crude above the 2008 highs.
It has never happened, may never, but Saudi Arabia has never had this degree of threat to stability either.
Maybe the Dow can hold 11,000 or so with $100 crude. Can it hold 5000 with $200 crude? I personally doubt it- might get RRs long predicted meeting of the Dow and the price of gold (around 2500? which in his view would be the time to finally sell gold and buy the Dow).
What would corn be worth with a 5000 Dow and $200 crude? I personally don't have a clue but $10 is a problem and so is $3.
02-23-2011 06:23 PM
I the possibilities being talked about are too extreme. Those pumping oil know that a severe collapse in oil prices would follow. They want to avoid that. As for ocean shipping, it is very efficient and the current over capacity is dropping prices and any shrinking in cargo would push the BDI over the edge and to the bottom.
At this point I think the real consequence of the Middle East situation is way over blown. If the house of Saud crumbles I would be very concerned about stability - though not the current rulers. A move toward democracy coud be a moderate move, though I think the long run potential is toward more unity against US-Israeli policies of the recent past by the regional norm of autocratic governments, just new people. I hope I'm wrong on all counts.
02-23-2011 09:04 PM
At several hundred gallon per hour one would want to manage your fuel costs---if one has competive rates and over capacity the last thing the business needs is there most costly operating expense double--transportations largest variable is fuel next to a over capacity environment