No-Fly and Fly High
There may be a "No-Fly" zone in Libya, but oil and commodities continue to fly high. Inspired by a confluence of historic geo-political and macroeconomic events, not to mention natural and man-made disasters, gold soared to a record high, silver to a 30 year high and that precious barrel of oil to the highest close since 2008.
While many have tried to minimize the upside risks to the price of a barrel of oil for the last month, the truth is we have very strong fundamental justification for where the price of oil is at and where it is probably going. In Libya there are worries about a stalemate as Libyan oil exports and production are down to a trickle. Oil that does get out will be subject to sanctions and not likely to be refined anytime soon.
In the meantime the coalition seems to be falling apart as the lack of US leadership seems to be a problem for countries that are more used to following the US as opposed to leading on their own. Now with the no-fly zone in place the question is what comes next? At this point no one seems to know. That happens when you do not have a plan or leadership to figure it out.
Now if you lost track of all of the problem spots in North Africa and the Middle East, make sure you add Israel to the list. A bombing of an Israeli bus is a reminder that while many in the market have been focused on Libya, things have really been heating up between Israel and Hamas.
Reuters News Reported that, "Expressing shock and deep sorrow over the attack, Secretary of State Hillary Rodham Clinton said in a statement that terrorism and the targeting of civilians are never justified. Pledging her country's commitment to the security of one of its strongest allies, Clinton said ‘Israel, like all nations, of course, has to respond when this occurs.’
Of course over the last few weeks Israel has already been responding to rocket attacks from Hamas in the Gaza strip. Hamas may be stepping up their attacks to take advantage of the unrest in the rest of the region. What better time to stir up emotions while emotions are high especially in one of your most solid allied states like Syria.
Syria apparently has a policy for protesters and that is shoot to kill. I know you are shocked to hear that as Syria fancies itself a freedom fighter, unless of course they are the target to provide freedom for their own people.
In Yemen the President is working out an exit strategy as his key generals are bailing. Still the protestors in the street are not persuaded as they continue to move.
Other commodities are flying due to concern about inflation and the global economy. As Portugal rejected an austerity plan, experts are saying the U.S. needs one sooner rather than later. Despite setbacks on Japan's nuclear reactor the markets are finally looking to the rebuilding phase and are grasping just how bullish that will be for the global commodity markets.
In China they are making big moves to acquire more copper, gold and silver by making a move to buy 4 or 5 mines. Add to that a global pullback from nuclear energy that will increase oil demand by at least a couple of millions of barrels of oil a day spare production capacity and the global oil market is getting tighter by the minute.
The market cannot afford another disruption by any other country at this point. Countries like Algeria, Nigeria, Iran and God forbid, Saudi Arabia. We are targeting 108 then 110 on WTI!