With 2% of global output, Libya is the world’s 12th-largest oil exporter. And although others (Saudi Arabia, mainly) jumped in to try to make up for the million or so fewer barrels that were being produced on a daily basis as a result of the civil unrest in the country, it was a tough one: Libya is particularly known for its light, sweet oil, while the Saudis produce the thicker, sourer Brent crude. You can’t just substitute one for the other – so while refineries in this country use Brent crude, those in Italy, for example, have been forced to find alternative sources for their oil.
The good news is that prices are likely to fall even further as events continue to unfold in Libya. Although, at this stage, the drop is more psychological than anything: all the signs might indicate that the rebels are winning, but the unrest is likely to go on for a little longer. And whatever happens once Gaddafi is toppled, it’ll be a while yet before companies are able to bring production back up to normal levels.
Of course, it’s not just the prospect of an end to the unrest in Libya that’s affecting oil prices: there’s also the small matter of impending economic disaster in the US and the eurozone. Prices fell during Asian trading hours as analysts continued to speculate that the US could slip back into recession, as Europe’s debt crisis threatens to impact growth in the region. And as we all know, lower growth equals lower demand for oil. (Gold, on the other hand, has continued to rise, breaking another record at $1,894.5 this morning. Impressive).
So there’s a good chance that, markets-wise, this week may be a repeat of last: this morning, the FTSE 100 fell 40 points to below 5000 in early trading, before bouncing 60 points, while Paris’ CAC rose by 1.2% and the Dax in Frankfurt nudged up by 0.4%. So it doesn’t look likely that we’ll see an end to the rollercoaster antics displayed by the markets over the past couple of weeks.
As for petrol prices, given supermarkets’ desperation to undercut one another, it probably won’t be long before the fall in oil prices is reflected at the pumps (or some pumps, at least). Whether that’ll translate to energy prices (which have recently been raised yet again by utilities companies) is another question entirely…