The turmoil in Libya, which started off at February 15th, enters into its third week. Qaddafi remains adamant in not stepping down from his ruling, even though by now it seems to be over, especially after his violent attacks against his people.
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 turmoil in Libya, which started off at February 15th , continues to be the main news items affecting crude oil price.
Muammar Qaddafi keeps on posing threats and sending troops to fight the protestors.
As a result the UN Security Council decided to pose economic and commercial sanctions against Libya and also called for the immediate investigation of the crimes being committed in Libya mainly by Qaddafi and his people.
In the mean time there are reports that due to turmoil in Libya, its oil production had declined:
The IEA claims that total crude production has dropped from 1.6 million barrels per day to 850,000. This is because almost all the international oil companies operating in Libya, which account for nearly 72% of Libya’s oil production, have reported partial or full shut-in of output. Notice, however, that Libya’s oil production target according to OPEC was nearly 1.45 million barrels per day, so the effect of the reduction in oil production should be a bit smaller than expected.
Libya, a member in OPEC, 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.
Despite the news for a significant reduction in oil production in Libya, OPEC members already step in and claim that the recent news from Libya won’t effect the worldwide oil production and there won’t be a shortage in oil.
Nevertheless, traders continue to show anxiety and the ongoing news seems to continue adversely affect crude oil price, mainly on OPEC oil price.
In the last couple of days, there are also riots outbreaks in Oman, an oil producer located in the Middle East but isn’t a member at OPEC; this news might also have an adverse effect on crude oil price.
Current crude oil price
Asia markets currently show rises in major oil prices:
The Nymex crude oil price, short term futures (March 2011 delivery) is traded at 99.25 USD / barrel, a 1.37 USD/b rise or a 1.4%, as of 7.14 AM*.
The Dated Brent spot crude oil is at 113.17 USD / barrel – a 1.08 USD/ barrel increase as of 7.25 AM.*
Crude Oil price Outlook and Analysis:
The long term effect of these recent riots in Libya remains to be seen, however, traders remain anxious and over play their hand as they continue going long on crude oil.
Recall that crude oil price soared last week: WTI oil price increased by 13.5% during the week, and Brent oil rose by 9.7%.
As the uncertainty remains and the turmoil will continue in the Middle East 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 of oil prices will remain high.
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 and should be more moderate.
Here is a reminder of the top news that will be published today that might influence oil and gas prices (all times GMT):
10:00AM– Euro Area annual inflation (January 2011)
13:30PM– Canada GDP by industry
For further reading (in this site):
- UN Security Council sanctions Libya
- Crude oil price in 2010 and outlook for 2011
- Oil prices soared as Libyan riots continued – Weekly recap 21-25 February
- Weekly outlook for Crude oil, Natural gas and Gold 28 Feb – 4 Mar