Oil Retreat a Key Positive

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"The resumption of Libyan crude oil exports will be a significant net positive for the global economy, and stocks will likely get a lift."

With nothing much on the economic docket for today, stocks will likely get a lift from the emerging Libyan picture. The resumption of Libya's long-stalled oil supplies in the wake of the imminent collapse of the Qadhafi regime will be a major boost for the global economy.

Investors will also be closely watching the Fed this week for any clues of further quantitative easing as the annual Jackson Hole meeting gets underway. It was in the Jackson Hole speech last year that Bernanke had announced the second round of quantitative easing (QE2). The Fed's QE2 program, which ended last June, gets the credit for addressing the deflation fears and giving us a stock-market rally.

I am not convinced that we will get anything more than a general discussion of the different policy options from Bernanke. Recent inflation readings make it difficult for Bernanke to come out with another round of quantitative easing even if he is otherwise inclined to go that way.

Libya was the country that seemed to have stalled the gains made by the so-called Arab Spring earlier this year. The resulting face-off between the NATO-supported rebels and the Qadhafi regime disrupted global oil supplies by removing Libya's high-quality crude oil from world markets.

For months now, the Libyan situation turned had into a stalemate between the Benghazi-based rebels and the Tripoli-based Qadhafi regime, with no side appearing to make any headway. But the rebels made gains this weekend and the regime appears to be on the run.

The resumption of Libyan crude oil exports following the end of the Qadhafi regime will be a significant net positive for the global economy. Lower oil prices will hasten the downtrend in fuel prices, removing a major drag from consumer spending. We have yet to see the full extent of the recent downtrend in oil prices show up at the pump. But the timing lag notwithstanding, the trend is clearly in right direction.

The stabilizing outlook for Libya will also be a net positive for a number of major oil companies that were forced by the conflict to shut down their operations. Oil majors will be looking forward to resuming their operations once hostilities come to an end. -Zacks Investment Research

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