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Libya hurting oil and share prices

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by Peter Switzer

One thing is forgotten about stock markets, except for crashes like the one in 2007-2009, is that when a market rises over a year, you forget the bad days and the corrections, especially when you finish in the money with a double-digit gain.

Thankfully, days when the market is down around two per cent or more can be short-term jolting and the best we can hope for is that the unsettling news from Libya gets sorted out as quick as possible.

Unfortunately, Libya is just one troubled oil hot spot with the issues in Bahrain not resolved.

Sky-high oil prices

Art Cashin, who I interviewed in December at the NYSE, told CNBC that Bahrain has a large Shiite Muslim population and they are governed by a Sunni monarchy. There are suggestions that Iran is stirring the pot with these people’s protests.

If the Libyan uprising is replicated, then oil goes sky high — it is now at 30 month-highs and that rattles the world economic recovery.

"That is our concern, regardless of the margins of disruption, if the $100 per barrel of oil is continued in 2011, the burden of oil to the global economy is as bad as 2008," Nobuo Tanaka, the executive director of the International Energy Agency told CNBC on the sidelines of a major oil conference in Riyadh.

International effect

That’s why the Shanghai Composite lost over two per cent yesterday because China is a big oil importer, as is Japan, and the oil price not only brings cost-driven inflation, it leads to production cutbacks.

This reliance on oil and their unstable suppliers has to be good for gas and alternative energy suppliers, including nuclear power!

Fortunately, OPEC has a spare capacity of five million barrels per day and the GFC helped it build up with less demand but time is of the essence.

The New York oil price is now at $US92 a barrel but Brent crude is now priced at $US107 and that’s huge. This is good for oil companies’ share prices but will hit refiners such as Caltex. These developments won’t be great news for Qantas and Virgin for obvious reasons.

US data overnight

As I’ve said previously, what we have now is Middle East instability versus the US recovery, that is now threatened by this oil price spurt. Overnight we learnt that February consumer confidence went to a three-year high at 70.4, which is way over the 65-level expected by the consensus.

Against this the 10-city index of the S&P/Case-Shiller Home Price Index fell 1.2 per cent and is now down for six months on a trot. I would like to see this turn around as soon as possible. House prices doing this sort of thing can derail the recovery.

Market pullback ahead?

Technically this market has been poised for a pullback — Lance Lai, my charts guy — tipped this a few weeks ago and the quick Egyptian solution probably worked against a market fall, however, this Libyan situation could change all of that.

At this stage I suspect we’re only in a pullback predicament but we need to see a quick resolution to stop hedge funds and short-sellers taking grip of stock markets.

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Published on: Wednesday, February 23, 2011