The 2011 oil shock

 The Economist 

More of a threat to the world economy than investors seem to think

THE price of oil has had an unnerving ability to blow up the world economy, and the Middle East has often provided the spark. The Arab oil embargo of 1973, the Iranian revolution in 1978-79 and Saddam Hussein’s invasion of Kuwait in 1990 are all painful reminders of how the region’s combustible mix of geopolitics and geology can wreak havoc. With protests cascading across Arabia, is the world in for another oil shock?

There are good reasons to worry. The Middle East and north Africa produce more than one-third of the world’s oil. Libya’s turmoil shows that a revolution can quickly disrupt oil supply. Even while Muammar Qaddafi hangs on with delusional determination and Western countries debate whether to enforce a no-fly zone (see article), Libya’s oil output has halved, as foreign workers flee and the country fragments. The spread of unrest across the region threatens wider disruption.

Oil price shock could re-rank emerging markets

Carolyn Cohn, Reuters - for Commodities Now
 
If oil prices stay where they are -- or go even higher, depending on events in the Middle East -- current short-term emerging market portfolio realignments could lead to a wholesale reassessment of investor risk. Some clear winners and losers in emerging markets have already been thrown up by the spike in oil prices caused by unrest in the region, which has distracted investors from relative yields and valuations.

Oil-rich Russia, Kazakhstan and Venezuela are all attracting investor interest and strongly increased fund flows, while oil-poor Turkey and Chile are suffering.

"Anyone that's got more oil is looking better at the moment, so oil exporters would benefit, and oil importers would not," said Allan Conway, head of emerging equities at fund manager Schroders. "That's one of the reasons Turkey is going down."

Conflict in Libya and unrest in Bahrain and Saudi Arabia have driven oil above $100 a barrel to its highest since the collapse of U.S. investment bank Lehman in Sept 2008.

"It takes a while for many investors to move...we are due for a further reassessment," said one emerging fixed income fund manager, who declined to be named. BNP Paribas Investment Partners says it is overweight commodity exporters such as Russia in currencies and sovereign bonds, and underweight importers like Turkey.

Oil Prices Could Be Obama's Worst Nightmare Come Election Time

Llewellyn King*   OilPrice.com 

Like death and taxes, the price of oil is always with us. And like taxes, it may be President Barack Obama’s worst nightmare at election time next year.

Among forecasters, there is a sharp division between those who see an inexorable rise in the price of oil and those who believe it will stabilize about where it is now.

The hawks see gasoline streaking ahead to $4-a-gallon this year and $5-a-gallon in 2012.

Others say demand will collapse and it won’t go that high. The Energy Information Administration is very conservative in its forecasts and it gives very high prices only a 10-percent chance of coming about.

Adding to the confusion is a nasty little spat between the International Energy Agency in Paris and the Organization of Petroleum Exporting Countries over price, inventory and what OPEC calls “technical factors,” such as pipelines down for repair or the loss of the Deep Water Horizon rig in the Gulf of Mexico last year. IEA is saying that OPEC is keeping its production quotas low to jack up the price—currently just over $90 a barrel and the highest grade Brent crude from the North Sea as high as $99 a barrel—and it is endangering the global recovery with its actions.