WTI future prices just passed the 100$ mark: the protests in Libya continues to their ninth day and Qaddaf’s recent public speech claiming he will see it through to the bitter end decreases the chances of the turmoil in Libya ending soon. Europe and the US voiced their objections to the bloodshed.
As a result, traders in energy markets reacted to the Middle East turmoil with further rises in crude oil price (WTI and Brent) for the second day this week.
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:
The protests in Libya enter its ninth day calling for their freedom from the ruling of Muammar Qaddafi.
Yesterday in a public speech Qaddafi was seen very confused and continued to threat in using all means in his power including violence to end the protests against him. According to Human Rights Watch they report of nearly 300 people dead from the confrontations with the Army, however unofficial reports claim this figure is nearing 2,000 people.
In his recent speech Qaddafi threatens he will damage the oil reserves of Libya, and by doing so cutting the supply of oil to many countries in Europe. These threats, however, should be taken with caution as it could be just more of a ploy to put pressure on Europe to help in his cause.
Europe and the US didn’t wait long to voice their protest against the bloodshed in Libya. Obama condemned the Libyan government’s actions against its citizens, and European Union officials comprising sanctions to be taken against the violent oppression in Libya. These sanction may include, embargo and seizing offshore assets of Libya.
Unlike Egypt, Libya is an important oil producer and a member of OPEC, and also unlike the outcome in Egypt, it seems that the battle of Qaddafi for his presidency won’t end as swiftly as it did for Mubarak.
Crude Oil price Outlook and Analysis:
Due to the recent rise in uncertainty in the Middle East and Qaddafi’s threat to damage the Libyan oil reserves, which are as of January 2010 estimated at 44 billion barrels, many traders reacted to these news items and as a result crude oil price soared this week: WTI oil price increased by 11.9% during this week, and Brent oil rose by 9.4%.
As the uncertainty will rise and the turmoil will continue in Libya we will probably further see pressure for a rise in crude oil price and its volatility. In times like these when the uncertainty is high, traders usually react more emotional and allow fear to get the better of them, by hedging against potential increases in crude oil in the near future.
The most reliable outlook in this case is that the volatility will continue to rise as oil prices fluctuates.
Nonetheless, since oil prices already rose very rapidly up to date, they already incorporated most of the risk that there is in oil due to recent news and events, therefore, the additional rises will be driven more by fear than rationality
Currently the Nymex crude oil price, short term futures (March 2011 delivery) is traded at 102.51 USD / barrel, a 4.41 USD/b rise or a 4.5%, as of 9.09 AM*.
The Dated Brent spot crude oil is at 117.64 USD / barrel – a 5.81 USD/ barrel decrease as of 9.19 AM.*
Finally there are speculations that due to the uprise in Libya traders will lean towards WTI over Brent oil and this might shirk the spread between Brent and WTI. Up to date, the spread between Brent oil and WTI spot prices is still high and over 15$/b.
Here is a reminder of the top news that will be published today that might influence oil and gas prices (all times GMT):
13.30PM – Department of Labor report – US unemployment claims
13.30PM – US Department of Commerce – Report on Durable Goods
15.30PM – EIA report about Natural gas storage
15.30PM – EIA report about Crude oil inventories
9.00AM – Monetary developments in the euro area
09:30AM– Great Britain GDP 4Q report
13:30PM– US GDP 4Q report
For further reading (in this site):
- Crude oil price in 2010 and outlook for 2011
- Weekly outlook for Crude oil, Natural gas and Gold 21-25 February
- Petroleum stocks decline for first time in weeks – February 17
- Oil prices’ erratic behavior – Weekly recap 14-18 February