End to conflict in Libya could mean lower gas prices
Adriene Hill: The price of oil around the globe has fallen this morning as rebel forces entered the Libyan capital of Tripoli yesterday. And global markets, especially those in Europe, are reacting positively to the news that Col. Moamar Gaddafi rule may be nearing its final days. At one point, before the current uprising, Libya supplied 2 percent of the world’s oil — and a lot of that went to Europe.
From the European desk, Marketplace’s Stephen Beard joins us live to talk about the economic impacts of the developments in north Africa. Good morning.
Stephen Beard: Hello Adriene.
Hill: So we have optimistic news coming out of Libya right now, but it’s still early and we don’t really know how quickly the rebels could establish a working government and economy — so why have we seen this immediate dip in the price of oil?
Beard: Well to an extent this is a knee jerk reaction, but Libya was a big oil producer before the civil war, pumping around 1. 6 million barrels a day, as you say around 2 percent of the global daily demand — and with the potential, geologists say, to pump as much as 3 million barrels a day. So the loss of Libyan oil was one of the factors keeping the world price higher than it would have otherwise have been. When this oil comes back on market, there will be extra supply and that will help push prices down.
Hill: And when is that going to happen? When could we see oil actually coming out of Libya? And how much oil are we talking about?
Beard: Well of course we don’t the answer to either of those questions, really. Analysts believe that we could see half the pre-conflict level of production — 800,000 barrels a day — back on the market fairly soon after Gaddafi falls and a new government is formed. Nick MacGregor, who’s an oil analyst with brokers Redmayne-Bentley, says oil production will be the first priority of any new government, such will be the scale and cost of construction the country needs.
Nick MacGregor: The first thing any new regime is look to resurect exports. It is so crucial to the overall financing for any future regime that they will be very keen to start exporting as quickly as possible.
How soon the rest of that 1.6 million barrels comes onto the market of course, depends on how much damage the conflict has done to Libya’s oil infrastructure.
Hill: Okay, put this into the bigger picture for me, if you don’t mind: How much of a difference will this make to global oil prices in the long run?
Beard: Well, Libyan oil — the possible availability of Libyan oil — is not the most important factor weighing on the oil market. The price of oil has been under downward pressure for some weeks under concern about the possibility of a double dip recession in the U.S. and Europe. That’s a more significant factor. It’s interesting to note that over recent weeks, the difference between the two great oil price benchmarks — West Texas, the American benchmark and Brent — have widened significantly. West Texas is now much cheaper than Brent, largely, its believed, because West Texas is delivered in the heart of the U.S. is much more directly exposed to worries about the U.S. economy. Brent, on the other hand, is used more widely as a benchmark for oil supplied to the emerging economies, and so is reflecting less worry about a downturn.
Hill: Marketplace’s Stephen Beard in London. Thanks so much.
Beard: OK, Adriene.
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