AFTER QADDAFI: Oil Prices Will Tank, Stock Prices Will Soar

Business Insider ^ | 08/21/2011 | David Kotok, Cumberland Advisors

[SeekAndFind]

News reports continue to show the progressive demise of the Qaddafi regime in Libya.

Rebel forces have apparently taken more of the country’s oil refining (Zawiya) and processing infrastructure (Brega). Most observers give the Qaddafi regime limited time before a full regime change takes place in Libya. Watch what happens to oil prices if and when the Qaddafis lose and leave.

In short order, Libyan oil production will ramp up. As it does, oil prices in world markets will fall and oil futures markets will reflect the expected increase in production of oil from Libya. The key prices to watch are those trading in Europe, like Brent. US oil prices (WTI) are no longer the leading indicator of world prices intersecting with world supply/demand. Excess inventory at Cushing, OK is complicating the pricing structure. We expect oil prices to fall when highly desirable, sweet Libyan crude production is fully resumed and enters the pipeline. Maybe, they are going to fall by a lot. This will come as a much-needed boost to the US economy and to others in the world.

Remember: the oil price acts like a sales tax on consumption. To clarify this relationship we convert crude oil prices to gasoline prices and then estimate what a change in gas price will mean for the American consumer. Roughly, a penny drop in the gas price per gallon gives Americans 1.4 billion more dollars a year to spend on other than gasoline. That is a huge stimulant to the economy. The ratio is different in Europe because the gas taxes are so much higher there. Nevertheless, it is still significant.

[johniegrad]

One can only hope. The downside is that Hussein will have his mug in front of any camera he can find claiming credit.

[mnehring]

Who wants to bet if stocks start to go up, Obama will cut his vacation short and make an economic speech, thus, crashing the market again?

[hinckley buzzard]

Dow futures down 69 points as we speak.

[KevinDavis]

That is if they ramp oil production..

[himno hero]

Credit for AlQaeda selling us fuel?

[johniegrad]

Credit for reduction in oil prices, improving stock market, and taking out Gaddafi.

[null and void]

Dow futures down 69 points as we speak.

And gold up to $1875/oz...

[Cicero]

Well, the NATO attack on Libya has put an end to oil exports until the violence ceases. But I wouldn’t be any too confident that it will lower oil prices in the long run.

The country will be taken over by Muslim terrorists who hate America and the West. Alternatively, the country will break down into civil war among the various tribes, who have little love for each other.

[palmer]

In short order, Libyan oil production will ramp up.

I guess the Jihadis taking over will get some help from Iran or Venezuela? Otherwise I don't see it happening since they will probably just shoot all the people who might know what they are doing.

[Osage Orange]

Wait just a minute....the guy said stocks will soar!!!

[central_va]

-69 is soaring it could have been -269. It’s all relative.

[bigheadfred]

wth did I do with my crackpipe????

oh, no....am i logged in????

[silverleaf]

If oil production “ramps up” it will because the BIG FIX goes into effect and the Europeans move workers in to operate the facilities.

Now, are these real nice democratic ululating islamic radicals going to welcome westerners with open arms to run their oilfields?

I doubt it

[Hoodat]

Roughly, a penny drop in the gas price per gallon gives Americans 1.4 billion more dollars a year to spend on other than gasoline.

So if the price of gasoline fell by 1000 cents, we would save enough money to cover a typical Obama budget deficit. To put it in perspective, $1.4 billion is trifling when our own government sucks out 1000 times that amount each year.

[himno hero]

Yep, they will want to show us a shiny side (excepting not mentioning that its a Iranian play with AlQaeda, MB and their ally Hussein Obama) for image enhancement amongst the unwashed. The joy of politics!

[SAJ]

Exactly. If the Muslim Brotherhood types take over -- and I'll take 3-1 on on that proposition -- any drop in overall price levels of crude will be short-lived.

However, a better way to trade crude will at that point be known. Buy WTI (NYMEX) crude futures and sell Brent (EuroNext) futures. Why? Libyan crude is a proxy for Brent, which is now trading some $22/bbl over West Texas. The jihadi types WILL have to export to pay their bills, and the mkt will transfer a considerable amount of demand to the more reliable suppliers. Or, in plain English, WTI will gain in price on Brent.

Good trading to you!

[tacticalogic]

The country will be taken over by Muslim terrorists who hate America and the West. Alternatively, the country will break down into civil war among the various tribes, who have little love for each other.

I still think Al Qaida traded Bin Laden for Libya.

[Brilliant]

So I guess tomorrow is the day to sell.

[xzins]

I’ve got to disagree. Stock prices have everything to do with horrendous debt of US and Europe.

Prices at the pump apparently have absolutely nothing to do with the price per barrel, because it has fallen dramatically from its high, but prices haven’t followed suit.