This “bad to less bad” situation could be great for one country… but terrible for this commodity
From Matt Badiali, editor, S&A Resource Report:
A “bad to less bad” situation in oil could send world oil prices lower this year.
A classic investment opportunity comes when you find a situation that’s starting to improve after some crisis… what we call going from “bad to less bad.” That’s when you get the biggest bang… so it’s time to go long Libya and short oil.
In 2008, Libya produced almost 1.9 million barrels of oil per day. However, the “Arab Spring” demonstrations swept through the country in late 2010 and in February 2011, government forces killed dozens of protestors. Civil war broke out and former dictator Muammar Qaddafi’s regime fell.
The war severely damaged the country’s production. Its 2011 oil production fell to 500,000 barrels per day. Russian oil company Tatneft bailed out of the country that year, taking its experts with it.
Even after the war ended, political insurgents continued to hit the new Libyan government where it hurts… its oil infrastructure.
Sabotage, pipeline blockades, and outright piracy pushed production down even further. To fight the theft of oil, the Libyan government actually blockaded its own oil ports. By December 2013, it fell to just 234,000 barrels per day. By mid-March of this year, it fell to 229,000 barrels per day.
That’s a decline of 88% from its peak.
However, crude oil futures in New York and London fell today because Libya could be going from bad to less bad. That would mean more oil supply on the market. Demand for oil remains sluggish due to European economic woes. The extra supply will send oil prices lower.
It seems that the Libyan government and the rebels are trying to put together a fledgling truce. Part of the deal includes re-opening ports for shipping oil. An official government delegation will meet with the rebels in their stronghold to settle the details.
To add to the good news, Tatneft agreed to return as well.
While Libyan oil production won’t come close to its 2008 peak, it could easily double production quickly. That news sent Brent crude, the European benchmark oil price, down from $107 per barrel to $104 in a week. That’s the lowest price since November 2013. The extra supply, and the potential for even more, could push oil prices even lower.
Crux note: While lower oil prices would be terrible news for most oil stocks, Matt has uncovered five small oil stocks set to soar this year… no matter what happens to the price of oil. To get the details on this unique situation, click here now.
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