Weekend Edition: Contagion Risks Moving Oil Prices

When it comes to oil prices, the fundamentals are out, it’s official. Risk contagion is what’s moving oil prices higher. Will the MENA virus hit Saudi Arabia or not? That is the question.

According to IEA’s executive director, Nobuo Tanaka, Saudi Arabia is able to replace Libya’s production completely. We are talking about 1.6 million barrels of oil per day if Libya’s production comes to a complete standstill. The IEA’s is also able to release 2 million barrels of oil per day from its stockpiles for the next 2 years. (That’s a lot of supplies)

Saudi Arabia’s 5 million barrels of oil per day in spare capacity is being ignored along with the strategic reserves all over the world. Oil is getting bought as a bet on turmoil inevitably hitting Saudi Arabia where “Day of Rage” protests are planned for March 11th and March 20th according to a facebook page. (The fact that the Saudis are divided on a date will potentially cause the protests to fail.)

If the protests do happen on a large scale, particulary in the oil producing eastern territories where the Shiite minority lives you can expect another spike in oil prices.  Until the fog of uncertainty dissipates, a lot of speculative money will be pouring into oil. The profit to be made is by buying oil (futures, ETFs) not oil stocks as a spike in oil prices will knock the stock market down. The Saudi Arabian index is down at least 20% for the year (a 6 months low), the chart is not pretty!

In a normal world, markets ignore turmoil when it happens in poor countries with little or no natural resources (sarcasm intended). Unfortunately, you’re going to have to be ready for the worst if this turmoil indeed spreads to another oil producer. (Time to work on a TSX shopping list for dividend payers in case we get a 20% rebate on prices)

Is stability and $80 oil too much to ask?

Economic roundup:

Alberta ranked as world’s top mining jurisdiction

IMF: Record Food Prices May Persist as Economic Growth Boosts Demand

S&P warns of downgrades on Portugal and Greece

China to Unveil Its Strategy to Rebalance Robust Economy

Dollar’s Dominance to End: Hedge Fund Titan

Weekly blog roundup:

InvesItWisely talks about Bitcoin: The Digital Currency of the Future

Intelligent speculator lists the Top 100 Dividend Stocks – March 2011

Money Reasons explains why Paying Off Your Mortgage is Like Working at a Second Job

The Passive Income Earner covers Dividend Yield: TransCanada Corp. (TSE:TRP)

Money Smarts Blog explains How To Unlock An Ontario Locked-In Retirement Account – LIRA, LRIF – 2011 Rules

Balance Junkie on how the End of QE2 Marks D-Day for the Markets

101 Centavos shares his Trade of the Week: Playfair Mining

Buck Inspire asks Is Saving Not Sexy?

Sustainable Personal Finance provides his February 2011 Blog Update

Retire By 40 talks about his Dad’s Retirement

Enjoy Your Weekend!