How to Profit From Libya's Oil Rebirth
When political violence started in Libya in February 2011, it wasn't surprising to see oil production there drop. The surprise may have come in the form of how much Libyan output was lost in the months leading up to the overthrow of now deceased dictator Muammar Qaddafi.
Prior to the start of violence in Libya, the North African country was pumping about 1.6 million barrels per day, making it the continent's third-largest producer behind fellow OPEC members Angola and Nigeria. That number plunged in the months that followed, but Libya now appears to be getting its oil act back together.
The country says it's producing about 1 million barrels per day right now and it believes it can get back to pre-war production levels by the end of this year.
Of course, there are winners and losers in this scenario, so let's take a look at them right now. Investors looking for ETF ideas should go here.
Biggest Loser: That dubious honor might just fall to Eni SpA (NYSE: E), the Western company that was hurt the most by the Libyan violence. Primarily through Eni, Italy is the biggest investor in Libya's energy sector, but may be at a disadvantage when it comes to new Libyan oil concessions, Bloomberg reported. That may be because Eni wasn't all that supportive of the rebels fighting Qaddafi.
Recently, Libya's former oil minister Ali Tarhouni talked like Hyman Roth in the "Godfather II," saying Libya would remember its friends when it comes to oil concessions. He listed four countries in order. Guess who was fourth? Italy. Bad news for Eni, which depends on Libya for 13% of its revenue.
Biggest Winner: That's easy. It looks like it will be Total (NYSE: TOT), a stock we've been bullish on for a while. Europe's third-largest oil company looks primed to be a big winner in Libya because, as Tarhouni told Bloomberg, "We are indebted to the French, and I cannot find the right words to say it." Kind words and music to the ears of France-based Total.
Not A Bad #2: The U.S. was the next country on the Libya favorites list after France and that could prove to be good news for select U.S. oil majors. Start with ConocoPhillips (NYSE: COP) and Occidental Petroleum (NYSE: OXY), the third- and fourth-largest U.S. oil companies, respectively. Both companies saw their second-quarter results hampered due to the Libyan violence, so any increase in production there could help those American oil giants.
Don't Forget... BP (NYSE: BP), Europe's second-largest oil company. To say BP and Libya share a checkered history is fair, but commentary aside, the British oil giant has been eager to start new projects in Libya. The violence stood in the way of that, but the reality is as soon as BP can start work in Libya, it will and since Libya is home to the ninth-largest oil reserves in the world, the country could prove pivotal in BP's efforts to boost production and reserves.
Traders who believe that Libyan oil production will soar might want to consider the following trades:
- Long the Energy Select Sector SPDR (NYSE: XLE). That ETF is home to Conoco and Occidental
- Long Total directly. The yield is better than most U.S. oil names.
- Long the SPDR International Energy ETF (NYSE: IPW). BP and Total are both in this ETF.
Traders who believe that Libya's oil production won't rebound soon may consider alternative positions:
- Short Eni, the company with the most on the line in Libya.
- Short the iShares MSCI Italy Index Fund (NYSE: EWI). Eni is one of that ETF's largets holdings.
- Long the ProShares UltraShort Oil & Gas (NYSE: DUG).
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