Oil prices fall as rebels enter Libyan capital
August 22, 2011
Oil prices have fallen on speculation the conflict in Libya may be coming to an end after rebels entered the capital Tripoli.
Brent crude futures fell 1.7% to $106.8 a barrel, while US sweet, light crude was steady at $82.9 in early European trading.
Markets are hoping that an end to the conflict will see Libya's oil exports restored, increasing global supplies.
Libya is the world's 12th-largest oil exporter.
Analysts said prices were likely to fall further as the political situation in the country unfolds.
"As the world wakes up to the news, we will see more momentum in the decline of oil prices," Jonathan Barratt of Commodity Broking told the BBC.
Broader negative sentiment about the outlook for the global economy also weighed on the oil market during Asian trading hours, before lifting as stock markets rallied in early trading in Europe.
The bearish tone, carried over from last week, led to modest losses on Asian stockmarkets, while the price of gold hit yet another record high.
Increased supplies?
Before the start of the conflict, Libya produced 1.6 million barrels a day of crude oil, or about 2% of the world's output.But as the political unrest in the country intensified, the majority of that production was hit, taking a toll on global oil supply.
Analysts say that if the conflict ends, production numbers are likely to rise again.
"Once they get back to recovery mode, a million barrels per day are expected to enter the global supply," said Commodity Broking's Mr Barratt.
"This will add weight to the decline in oil prices that we have seen recently." he added.
However, some analysts said that even though the Libyan conflict seemed to be heading towards an end, there was still uncertainty about how fast the country's oil production could be restored to the pre-conflict levels.
"It will take a long time for them to repair the production facilities and get back on track," Avtar Sandhu of Phillip Futures told the BBC.
"What we are seeing today is more of a psychological selling," he added.
Macroeconomic factors
Oil prices have also been hit by concerns that demand may be hurt by a slowdown in the global economy.There have been growing concerns that the US may be slipping back into a recession and that Europe's debt crisis will hurt growth in the region.
"We can count on slower economic growth in US and Europe, and that is going to impact demand for oil." Victor Shum of Purvin and Gertz told the BBC.
Analysts said that, with two of the world's biggest economic zones struggling to boost growth, oil prices are likely to slide.
"Until the US and Europe can come up with a long-term solution for sustainable growth, markets are likely to be subdued," Phillip Futures' Mr Sandhu said.
"In the long run, macroeconomic issues will play a huge role in determining which way the oil prices are headed," he added.
Japan threat
European markets got off to a positive start, although worries about the state of the global economy are lingering.The FTSE 100 in London and the Cac 40 in Paris rose more than 1% in the first hour of trading, led by energy stocks and a rebound in banks.
Markets had fallen heavily on Thursday and Friday - with banks hit hardest - on fears of a renewed recession in the US and Europe.
The negative sentiment continued to weigh on Asian markets on Monday, with Tokyo's Nikkei ending the day 1% lower, while Hong Kong's Hang Seng finished 0.5% lower after a late rally.
Meanwhile haven investments continued to rise.
The price of gold rose 2.3% to hit a record high yet again, of $1,894.5 per troy ounce.
The Japanese yen was trading close to its record level of 76.1 yen to the dollar set on Friday.
The country's finance minister Yoshihiko Noda reiterated the government's readiness to intervene if the currency strengthened further.
"We will watch markets even more closely than before to see whether there is any speculative activity," he said.
"We won't rule out any measures and will take decisive action when necessary."
The Swiss franc - another popular haven currency - held steady at about 1.13 euros. The Swiss authorities intervened last week to curtail the strength of their currency.
The US Federal Reserve chairman, Ben Bernanke, is expected to hint at further monetary stimulus measures in a major speech at Jackson Hole in Wyoming on Friday, which is likely to weaken the dollar.
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