Brent crude climbed to $108 per barrel and US oil contracts leapt by $6 a barrel on Monday as Colonel Gaddafi’s bid to cling to power in Libya appeared to become more desperate.
Oil prices soared on worries of a full scale civil war in the country while there are reports that an Islamic emirate could be created in Libya’s eastern Barqa region.
Oil markets are pricing in sharp rises over fears that neighbouring Saudi Arabia and the Gulf States could be sucked into domestic conflicts. Deutsche Bank’s commodities head Michael Lewis told the UK’s Daily Telegraph that December call options on US crude, which have a ‘strike price’ of $120 have doubled in the last two or three days raising expectations of a sharp price escalation.
As the bloodshed continued, oil firms BP, Statoil, Total and ENI are scrambling to evacuate their workers, as Libya’s vast oil fields are shut down.
The loss of capacity could lead to huge pressure on global supplies of oil.
While Egypt is a relative minnow in terms of oil production, Libya is Africa’s largest producer, pumping out some 1.4 million barrels per day in exports alone, primarily to Germany, Italy and Spain.
Global spare capacity is only some 4.5 million barrels with one Barclays analyst telling the Telegraph that level was ‘not comfortable’ in the current situation.
Libya, which was downgraded by credit agency Fitch on Monday afternoon, only produces around 2.3% of the world’s oil output, but some of its neighbours are far bigger players.
There are widespread fears that the wave of insurrection across North Africa and the Middle East could continue to have a domino effect, with the spotlight shifting to oil-rich Saudi Arabia and the Gulf States which between them produce around one third of the world’s oil supply.
The situation has heaped pressure for Opec to boost capacity to deal with any potential shortfall, but so far the body has resisted, arguing that world markets are ‘sufficiently supplied’.
The International Energy Agency has described the current scenario as ‘alarming’ although global oil inventories are higher than prior to the 2008 price spike.
(Source: citywire.co.uk)
