LIBYA: ‘V’ PROFILE COMING FOR OIL PRICES?
March 28, 2011 By 1,193 Comments
21st Century Wire
By Andrew McKillop
March 28, 2011
Coalition bombing in Libya has transformed the prospects for embattled insurgents, now sweeping further and further west from their Benghazi stronghold. Likely ground support, or at least weapons supply and military specialist manpower from the coalition can speed the coming encirclement and defeat of the Gaddafi regime, in its Tripoli heartland.
As Gaddafi loses ground, oil prices should slide and set to a V-profile in forward trading, with the rebound leg coming after the sequels of Libyan regime change are better mapped. Oil forwards, already softening this week from a mix of other factors, may show a sharp downward blip, perhaps trimming prices for US WTI to the key $99/bbl psychological price level, below which support can weaken through a range of up to 10 dollars on continuing bearish sentiment. The pace of events in Libya and ground advance by the insurgents will fix the time interval for this price strategy.
Countervailing trend across the Sarab world, especially the Middle East can include heightened tension in Bahrain, Yemen, Syria and Jordan. Any overflow to street protest in Saudi Arabia can only be oil price positive.
JAPAN RUNS BOTH WAYS
To the extent Japan can manage and sustain national reponse to the twin disasters of massive tsunami damage and nuclear meltdown, or near-nuclear meltdown at its Fukushima 6-reactor complex, Japan’s role as third biggest oil importer in the world will always tend to lift oil prices. But if the nuclear disaster becomes a multiple-Chernobyl leading to accelerated decentralization and population reduction of Tokyo and its region – long planned and discussed at cabinet level but never moved to application – the bets are off for Japan quickly racking up its oil import demand. Sombre scenarios are now on the Web for what happens if the world’s third biggest economy goes into something a lot worse than recession.
Oil is not favoured in that sombre scenario – but the food commodities are. Japan’s need to import food will stay strong under any hypothesis, any scenario and nuclear disaster wiping out as much as 20 000 square kilometres of food producing areas can only, and powerfully reinforce that analysis.
This generates a two way oil-and-soft commodities strategy for generating investor value, with a strong focus on the best crossover soft commodities. These are provided by sugar and the major traded vegetable oils, palm and soy. Both have considerable upside potential at this time, with sugar being exposed through its close correlation with petroleum oil to the largest predictable range of price movement in the coming few weeks. Sugar prices may grow by large amounts from this week’s price range, attain a peak, and fall with oil, while palm and soy oil are likely to show sustained price appreciation in choppy trading.