Oil prices outlook – 22 February

The news of the uprise in Libya has attacked the crude oil price (WTI and Brent) with rapid rises, despite the downward trend of WTI price during 2011. Let’s examine the recent activity in the energy market and analyze the effects of the recent news from the Middle East on crude oil price:

In Libya, there are still violent protests against President Muammar Qaddafi, with thousands of people calling for his immediate resignation.

After the uprise in Tunisia and Egypt, the Libyan people also seek change. In the seven days of protests, there are reports of nearly 600 people dead during the conflicts between the protestors and the army.  There were rumors that Qaddafi has fled Libya to South America, however in this Youtube clip you can see Qaddafi standing in the rain and saying he hasn’t fled Libya.

Libya, a member in OPEC and holds the largest oil reserves in Africa with 44 billion barrels as of January 2010, is a major exporter of oil mainly to countries in Europe such as Italy, Germany and France.

Note that there are also still calls for change in Bahrain and Yemen. Therefore, the entire region is still unstable.

As part of the rise of the risk in the Middle East, two Iranian warships have recently passed the via Suez Canal en route to Syria (according to an Egyptian official). These ships might pose a threat on Israel and could further drive up the uncertainty in the Middle East along with the tension in the entire region.

Crude Oil price Outlook and Analysis:

For now the uprise in Libya started to affect investors as crude oil price rose very promptly very high: the Nymex crude oil price, short term futures (March 2011 delivery) is traded at 93.84 USD / barrel, a 7.64 USD/b rise or a 8.86% fall, as of 7.23 AM*.

The Dated Brent spot crude oil is at 107.25 USD / barrel – a 0.15 USD/ barrel decrease as of 7.35 AM.* Yesterday, however Brent oil rose by 5.1% to reach 107.4$/b.

(* GMT)

Notice that during times of uncertainty the most common thread in these cases isn’t the direction of the prices (going up or down), but the level of volatility; in many cases, as fast as the prices go up, they usually just as quick go down. Recall just a couple of weeks ago a similar situation occurred with the uprise in Egypt: after a couple of days of rises for crude oil price, the fall came soon after, despite the turmoil in Egypt hasn’t subsided (many traders were concern about the Suez Canal not being open and holding ships with commodities from passing).

Unlike Egypt, Libya is an important oil producer and a member of OPEC and the current turmoil is an internal uprise between the Libyan people and its ruler. As such while the uncertainty in this country is high, but there is a bit less risk that oil will not flow outward from Libya as it’s of none of the fighting parties’ interest to withhold oil.

Up to now the main characteristic of crude oil prices in this passing week, is the rise in their volatility: last week (14-18 Feb) the standard deviation of the daily percent change in Brent oil was 1.77%, compare to 0.67% a week earlier (7-11 Feb); WTI spot price’s standard deviation last week was 1.4% compare with 0.68% a week earlier.

As the uprise in Libya will continue, there will also be a rise in the volatility in crude oil price. Further, there might be some additional rises in crude oil price; however, if there won’t be any additional breaking news and the fear of withholding oil in Libya will not become real, the crude oil price will probably decline, as the week progresses.

Here is a reminder of the top news that will be published today that might influence oil and gas prices (all times GMT):


23.50PM – Report of Japanese Trade balance (for January)


15.30PM – EIA report about Crude oil inventories

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