Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude market...
Thanks, Mr. Gaddafi
08/26/2011 10:07 am EST
The timing of the collapse of Muammar Gaddafi’s rule in Libya couldn’t be much better—for the global economy.
Projections that the rebels, whenever they can get a government together, will be able to restore at least some of Libya’s pre-civil war oil production have helped push oil prices lower. And that will cut costs for consumers and companies, and give economies a boost just when they need it.
In the US, for example, every dollar not spent on gasoline or other oil products is one more dollar that families have to spend on necessities such as groceries and clothing, as well as discretionary items such as eating out or going on vacation, and that companies have to invest in employees or machinery—or to simply send to the bottom line.
Libya will be able to restore production to about 300,000 barrels a day within the next two to three months and then to 500,000 barrels a day by the end of the year, oil industry analysts project.
And that should send oil prices, which have already been in retreat as the global economy slows and demand drops, even lower.
West Texas Intermediate traded at $103 a barrel at the end of May and $116 near the middle of April, but closed at $85 a barrel on August 25.
Thanks to the end to the Libyan conflict and the likely end of supply disruptions in the North Sea and West Africa, it doesn’t look like prices are headed up anytime soon either—even if growth is a bit stronger than expected. For example, Standard Chartered has lowered its forecast for third-quarter oil prices to an average of $90 a barrel, from an earlier projection of $98.
That’s not good for oil stocks, of course, but it would bolster growth and earnings for most other sectors.
A drop in oil prices would give the US economy the kind of boost the Federal Reserve is looking for, without the danger of higher inflation that would come with a new round of quantitative easing or other monetary policies to stimulate growth.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of June, see the fund’s portfolio here.
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