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Russ Koesterich, CFA
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Russ Koesterich, CFA, Managing Director, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a founding member of the Blackrock Investment Institute, delivering BlackRock's insights on global investment issues. Mr. Koesterich's service with the... More
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The Ten Trillion Dollar Gamble: The Coming Deficit Debacle and How to Invest Now: How Deficit Economics Will Change our Global Financial Climate
  • Middle East Impact on Oil 0 comments
    Feb 24, 2011 7:45 PM
    Taken from iSharesblog.com

    What does unrest in the Middle East and North Africa mean for oil prices?  Suddenly, quite a bit.

    Just a few weeks ago, in early January, with oil at $92/barrel, it appeared that, while the long-term bullish case for oil looked strong, the price of West Texas Intermediate crude (one of the main oil benchmarks) looked overdone in the near term.  And when unrest began a few weeks ago in Tunisia and Egypt, it had only a short-lived impact on the price of oil, because the two countries are relatively small oil producers, and there was no disruption to supply through a closing of the Suez canal.

    However, with unrest spreading to Libya and other more significant oil producing countries, further pull backs in crude are not likely in the near-term. Here are key points for investors to consider:

    1) The situation in Libya is deteriorating quickly. Libya produces 1.8m barrels a day and has 41b barrels of proven reserves, three percent of global supplies.

    2) Unlike Egypt, where a strong, established, and respected military can provide near-term stability and the potential for a peaceful transitional government, it is not clear what the exit strategy would be in Libya should the regime fall.  Oil production would certainly be at risk.

    3) In addition, further contagion appears to be intensifying in Bahrain, Yemen, and most importantly Iran.

    In short, political instability in the Middle East has now reached a point where it is likely to add to the risk premium for crude (it is already impacting Brent Oil, the European benchmark).  The broader impact of higher oil prices will be a marginally higher headline CPI in the near term, a negative environment for stocks (particularly consumer discretionary, but obviously not energy stocks), and a positive for volatility.

    Source: Bloomberg

     

    Carefully consider the iShares Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses, which may be obtained by calling 1-800-iShares (1-800-474-2737), or by clicking the Prospectuses link. Read the prospectus carefully before investing.

    Investing involves risk, including possible loss of principal.

    The iShares Funds (“Funds”) are distributed by SEI Investments Distribution Co. (“SEI”). BlackRock Fund Advisors (“BFA”) serves as the investment advisor to the Funds. The iShares Blog contributors are affiliated with BlackRock Fund Distribution Company (“BFDC”), which assists in the marketing of the Funds. BFA and BFDC are affiliates of BlackRock Institutional Trust Company, N.A. (“BlackRock”), none of which is affiliated with SEI.

    The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications or other transactions costs, which may significantly affect the economic consequences of a given strategy.

    The information provided is not intended to be tax advice. Investors should be urged to consult their tax professionals or financial advisors for more information regarding their specific tax situations.

    Neither BlackRock Institutional Trust Company, N.A., and its affiliates nor SEI and its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.

    This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.

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