Talk is cheap. Especially when you’re in the middle of an oil price war.

So Saudi Arabia’s oil minister Ali al-Naimi, certainly didn’t expect global oil markets to send the price of crude tumbling just because he said “I think high prices are unjustified today” in a March 20 press conference in Qatar.

That’s why he paired talk with action—or at least with talk of the actions that the Saudi’s had taken. Saudi Arabia had an extra 2.5 million barrels a day of production capacity that it could bring on line; Saudi oil storage reserves around the world were full; and a newly hired fleet of super tankers were on their way to the United States.

But Ali al-Naimi must have been disappointed in the market’s reaction to this salvo. On the day the price of Brent crude, the European benchmark, fell just $1.59 a barrel, or 1.3%, to close at $124.12. Brent crude is up, as of the close on March 20, by 15% in 2012.

One day’s battle doesn’t decide a war, certainly, but the Saudis have pulled out their big guns and they didn’t make much of an impression.

Is there anything Saudi Arabia, or the governments of Europe and the United States, can do to stop oil from moving higher? Or have the speculators won a free hand to drive up oil prices—and the price of gasoline–until the day they decide to take their profits?

Let’s start by looking at what the Saudis did and why those actions didn’t impress the global oil market. Read more

Buy SeaDrill (SDRL)

Scary financial engineering or buying opportunity? As is usual with SeaDrill (SDRL), some of both. But I think the final addition comes out on the plus side and I’m going to buy shares (the New York traded ADRs actually) of this very aggressive Norwegian ocean drilling company in Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ today.

SeaDrill announced another bit of financial engineering yesterday. Hemen Holding Limited, a company controlled by trusts established for the benefit of John Fredriksen, chairman of the board at SeaDrill, and his family, announced that it had sold 24 million shares of SeaDrill stock. (After the sale Hemen will still own 109 million shares of SeaDrill. The company has about 470 million shares outstanding so a sale of 24 million shares amounts to about 5% of total shares.)

SeaDrill’s American Depositary Receipts were down 3.1% yesterday and today have fallen another 1.4% with the general market as of 12:30 p.m. New York time.

The selling news is enough to give anyone pause—after all investors are rightly told to beware of stocks where insiders are selling massive numbers of shares. But I think, after looking at the deal, I’m going to recommend SeaDrill as a buy anyway—although I do think you might want to build this position slowly in case the selling by Hemen drives the price lower in the next few days.

The sale by Fredriksen has more to do with his ambitions to buy a fleet of oil tankers for his new company Frontline 2012 than it does with any desire to cash out on SeaDrill. Read more

It’s different this time.

No, no, it really is.

Libya isn’t Egypt and the effects on the stock market this time will be different from the effects of the earlier crisis.

Different enough, in my opinion, that you need to factor them into your investment strategy. But not so different that you need to tear up all your investing plans for 2011.

The short-term effects don’t look that all that different, I admit. Especially if you look just a developed economy stock market like that in the United States.

Egypt, as scary and exciting (and important, especially for Egyptians) as it was at the time created, barely a ripple in the U.S. stock markets. On January 25, the “Day of Rage,” the Standard & Poor’s 500 stock index closed at 1291. On January 28, the biggest drop during the crises, the index closed at 1276. By January 31, the day when 250,000 protesters gathered in Tahrir Square, the index was back to 1286. By the day of Hosni Mubarak’s resignation the index had climbed to 1329.

The Libyan crisis is already longer than the Egyptian crisis. Demonstrations began on February 15 in Benghazi and the Libyan crisis was in Day 17 as of March 4.  The Egyptian crisis from January 25 “Day of Rage” to Mubarak’s resignation ran for just 17 days.

At this point U.S. stock market reaction to the Libyan crisis isn’t a whole lot bigger. The U.S. S&P 500 closed at 1328 on the day of the Benghazi protests, fell to 1306 on the February 17 “Day of Rage” demonstrations, rallied, and then fell on March 1 to 1306 again. It rallied to 1331 yesterday as good economic news from the United States overwhelmed reports of continued fighting in Libya. (See my post http://jubakpicks.com/2011/03/03/dont-worry-be-happy/ )

If you want to see “different,” you have to look at oil prices. Read more

China is buying gold at a faster pace than last year.

Gold purchases in China climbed to 200 metric tons in the first two months of the year. Last year gold purchases in China totaled 580 tons. An example of just how hot demand for gold has become in China: The Industrial and Commercial Bank of China, started physical-gold linked savings accounts only last December. Since then the bank has opened 1 million accounts that hold 12 tons of gold.

For gold prices–$1424 an ounce as I write this–the reasons for the buying are as important as the buying itself.

Some of the buying—as is the case around the world—is a reaction to fear produced by the uprisings in the Middle East and the threat to global oil supplies and world economic growth. Demand driven by this fear would, logically, taper off if and when the Middle East retreats to its normal level of instability. Gold buyers should be worried about the price of gold dropping as the fear reading goes down.

But part of the buying is being driven by fears of rising inflation inside China. Read more

Is the violence in Libya the last straw for the world’s emerging economies? Or at least for investors in those markets?

I certainly think that the big drops in emerging market stock markets are leading some investors to abandon markets that they never felt all that comfortable with in the first place.

For those of us—and I do mean us—who do believe in the long-term emerging markets story (and I wouldn’t have started a global mutual fund if I didn’t), it is still important to acknowledge that what we can call the Libya crisis for short has increased the medium term—say the next six to nine months–risk of these markets.

How come? Higher oil prices are a big problem.

Yes, I know that Saudi Arabia has lots of excess oil capacity and has pledged to pump to meet any losses from Libya. I know that it’s likely that once the Libyan crisis is over oil prices will retreat from current levels so that the world is probably not looking at $110 a barrel oil as the new base price. (I argued all this in my post http://jubakpicks.com/2011/02/23/its-still-a-little-early-in-the-libya-crisis-for-bargain-hunting/ )

And I know that the worries of the moment have concentrated on the world’s developed economies, especially Europe, which is very dependent on oil and gas supplies from Libya. The worry here is that higher oil prices—and Brent crude traded at $111 a barrel on February 23—will stall the weakest economies in the European Union. (A rule of thumb among economists is that every $10 increase in the price of a barrel of oil cuts GDP growth by half a percentage point within two years.)

But higher oil prices, even modestly higher oil prices, couldn’t come at a much worse time for emerging economies where governments are waging a tough battle to control inflation without tipping their economies into a big slowdown.

That balancing act, already difficult, got much, much harder with Libya. Read more