Let’s examine the crude oil market, analyze the recent news from the Libya and check if there is any news that might affect crude oil price:
Libya Turmoil update
According to recent reports the fights and bloodshed in Libya enters its fourth straight week, as the rebels hold on Oil Port of Ras Lanuf. There are air strikes by Qaddafi’s military to push the rebels back from progressing to Tripoli – Libya’s capital. The current death toll is at roughly 1,000 to 2,000 people.
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.
OPEC members are to raise their oil output
According to FT news Kuwait, United Arab Emirates and Nigeria have joined Saudi Arabia and raise their oil production to close the void created by Libya ad its oil output has declined, according to IEA, from nearly 1.6 mb per day to 0.6 mb per day.
According to the article the output of these countries will incline by 300,000 b per day in the next several weeks, this is on top of the increase of 700,000 b per day in Saudi Arabia’s output.
China’s target to cut off energy consumption
After the recent rise in inflation in January 2011 in which the yearly inflation rate reached 4.9%, nearly one percent point above the 4% yearly inflation target, China is determined to fight off inflation. The inflation pressures are probably related to the recent rise in crude oil price. Thus, China targets to decrease its energy production by 3.5% per GDP unit. This is an attempt to be greener according to the press release, but will also serve to reduce inflation. As to whether China will succeed, is a different story and remains to be seen.
Current crude oil price
Asia markets currently start off with moderate falls in major oil prices:
The Nymex crude oil price, short term futures (April 2011 delivery) is traded at 103.7 USD / barrel, a 1.74 USD/b decline or a 1.65%, as of 8.09 AM*.
The Dated Brent spot crude oil is at 114 USD / barrel – a 0.6 USD/ barrel decrease as of 8.19 AM.*
Crude Oil price Outlook and Analysis:
If I would to speculate, even though the turmoil in Libya progresses, the effect it has on the oil market will have to subside and thus the pressure this news has on crude oil prices will eventually, in my humble opinion, scale down; since other OPEC members picked up the Libya’s slack and increased their oil production, even if their oil output won’t be a perfect substitute to Libyan oil (there are additional costs of transport, different types of oil etc), it will fill up Libya’s void and reduce the pressure of oil prices to further increase.
Notice that the spread between WTI and Brent oil continues to close, as the gap declined yesterday to 9.16$/b – the smallest spread since January 31st – when the riots in Egypt commenced.
Here is a reminder of the top news that will be published today that might influence the markets (all times GMT):
7.45AM – French trade balance
13.15AM – Housing starts report in Canada
Tentative – China’s foreign trade balance
12.30PM – Australian Bureau of Stat. will publish the unemployment rate
15.30PM – EIA report about Crude oil inventories
For further reading (in this site):
- U.S Labor report didn’t show improvement in employment
- Weekly outlook for Crude oil, Natural gas and Gold 7-11 March
- Oil prices rise as Libyan turmoil progress – Weekly recap 28 Feb 4 Mar