Russia and Oil: The Libya Factor

August 23, 2011
Asia's markets and most commodities are tracking higher this morning as investors wait in hope that the US Fed may announce some new measure to try and boost economic growth when it holds its annual meeting at Jackson Hole, Wyoming starting Thursday. Sentiment remains very fragile and while investors will try to extend those gains across other markets today, any disappointing data point will reverse that trend.
The initial knee-jerk reaction to the news of the surprisingly quick advance of opposition forces into Tripoli yesterday was a $2 /bbl fall in the price of Brent as traders started to factor in a quick return for Libyan oil to the export market. A more sober reflection suggests that while a quick return of 300-500,000 bbl/d is possible, it may take anything up to 18 months for full recovery. (See more detailed note below). The price action of the past 24-hours supports the bullish case for oil and reflects the net long position in then Futures market. This is a very positive backdrop for the Russia investment case once the rest of the world settles.
Brent crude for one-month delivery is trading at $108.79 p/bbl in Asia currently and that is now higher than Friday's close. WTI is at $85.03 p/bbl.
The dollar-euro rate is at $1.4372, i.e. almost unchanged in 24 hours as traders wait for fresh news from either the EU or the Fed on Friday. Gold is again at a record high, last trading at $1,906.4 per ounce. Silver is up another 1.1% after gaining 3.3% yesterday. Copper is 0.5% better.
Today. While investors are now firmly focused on the US Fed’s annual meeting at Jackson Hole, and Bernanke’s speech on Friday in particular, there are two important data points scheduled for today that may have an impact on equity and currency market sentiment. In Europe, Germany updates manufacturing and service trends and the UK will publish an indicator of industrial trends. In the US, the main number is the July new home sales report. Against the current negative global backdrop, investors are much more sensitive than usual to almost all indicators.
Corporate. There are several corporate reports in Russia today; Hong Kong listed IRC (1029:HK) has just published good numbers and the stock is trading 5.3% better in HK at mid session. Veropharm (VFRM RX) is expected to publish 2nd Qtr operating results and TNK-BP (TNBP RU) will publish consolidated 1st half US GAAP numbers.
Politics: Ruling party support recovering
Matviyenko victory. Russian media reports that St. Petersburg governor, Valentina Matviyenko, has secured more than 90% of the votes in two city district elections at the weekend. Once she takes one of those seats, she will be eligible to be appointed speaker of the Federation Council, the country’s third most powerful position after President and Prime Minister. Matviyenko will replace (as speaker) Sergei Mironov, who is also head of the A Just Russia party, currently the fourth most popular with