The attack of the allied forces in Libya on Qaddafi’s facilities had begun and the oil market is already reacting with oil price rises.
Let’s review the main news items that are related to the oil market and might affect crude oil price as of March 21st:
Libyan attack update
Following the decision to enter Libya, the attack of allied forces continue in their attempt to ground Qaddafi’s air force and thus enforcing the UN’s decision of a no-fly zone over Libya.
There are already some critics against this recent attack by the allied forces: some claim that this attack caused the death of civilians, other claim that because there isn’t a clear exit strategy this invasion could prolong.
This attack in Libya raises the uncertainty in the region and thus could prolong the conflict between Qaddafi and the rebels.
There are calls made by western oil companies operating in Libya that they fear the potential nationalization of their operations in Libya by Qaddafi.
Japan’s turmoil update
The recent news from Japan is related to the Nuclear Reactor in Fukushima, as there is a risk of a nuclear ecologic disaster in the region. There are positive news from the region in tacking the containing the nuclear meltdown.
Japanese officials state that the number of missing or dead could rise to well over 21,000.
Japan will need to start looking for plans of recovery and finding energy solution in the short and long term; There are claims that Japan will get emergency liquefied natural gas from Malaysia’s state-owned oil company Petronas (For more on the considerations about recovery of Japan see here).
Yemen protests – update
In an attempt to curb the protests in Sana, President Ali Abdullah Saleh, who has been ruling Yemen for the last 32 years, fired his government on Sunday. Despite this move, the protestors continue calling for the resignation of Saleh and the implementations of reforms in the current regime.
Yemen is an oil producer of 0.26 million barrels per day during 2010 and with proven reserves of 3 billion barrels as of January 2011.
Current crude oil price
European markets currently start off with rises in major oil prices:
The Nymex crude oil price, short term futures (April 2011 delivery) is traded at 102.72 USD / barrel, a 1.65 USD/b incline or 1.63%, as of 8.57*.
The Dated Brent spot crude oil is at 115.17 USD / barrel – a 0.86 USD/ barrel decrease as of 9.07*.
Crude Oil price Outlook and Analysis:
The recent attack of allied forces on Qaddafi’s facilities and warplanes raised the uncertainty in the region and caused many traders anxiety that the turmoil in Libya will prolong.
In regards to crude oil production, in January Libya’s oil output was at 1.6 million barrels a day, but now it’s very low (perhaps less than third). Even if we will assume that the current production is zero, which means that nearly 2% of the oil production is lost due to Libya’s turmoil, there is still little evidence to support rises in crude oil prices due to this matter. There are OPEC members that raised their oil output including Saudi Arabia, so that the pressure for oil prices to further increase due to lack of supply should fall.
Furthermore, the recent turmoil in Japan, one of the largest importers of crude oil, may have caused Japan to seek alternative energy sources such as natural gas because of the damage made to its oil refineries.
Nonetheless, the news of the attack in Libya seems to raise the speculations about the potential lack of crude oil and a further escalation in the Middle East and North Africa. If I would to speculate, this news along with the current turmoil in Japan will continue to affect the uncertainty of the energy market resulting in ongoing rapid rises and falls with no clear trend in the short term, until the uncertainty will subside, as we have seen last week (see here).
The Brent oil and WTI spread: as of Friday, March 18th the difference between Brent and WTI reached 13.23$/b; I speculate that the spread will continue to range around 10-14$/b.
Here is a reminder of the top news and reports that are planed for today and tomorrow that might influence the markets (all times GMT):
15.00 – ECB president’s speech
13.30 – Core retails sales Canada (January 2011)
For further reading (in this site):
- Weekly outlook for 21-25 March
- The erratic behavior of oil prices – Weekly recap 14-18 March
- Japan’s turmoil aftermath – preliminary outlook