The crisis in Libya – the world’s eighth largest oil producer – has already pushed up the price of oil to $114 and if the situation continues to worsen it could go up a lot more.
Libya, member of Petroleum Exporting Countries (Opec) provides a 10th of Europe’s oil, about 1.8% of global gas; aprox. 1.6m barrels a day of crude oil.
Datamonitor energy research director Neil Atkinson warned:
“The real fear lurking behind the Libyan story is over Saudi Arabia.
“It is an indispensable producer and no amount of stock drawdown could cope with a significant interruption of supply.
“This is the main reason oil prices are spiking – prices are increasingly future driven and we live in the world of tomorrow’s prices today. Any sign of trouble in Saudi Arabia is a justifiable cause of concern.”
He said the Organization of Petroleum Exporting Countries (OPEC) would consider holding an emergency meeting before its next scheduled meeting in June if prices reached an “unacceptable” level. He declined to specify a price.
He also said OPEC oil ministers meeting in the Saudi Arabian capital weren’t yet discussing whether the organization needed to pump more crude or use spare capacity.
“That will be discussed at our next meeting,” he said.
Brent crude rose 3.2 per cent in the past two days on London’s ICE Futures Europe exchange as fighting erupted in Libya, compared with a 2.7 per cent advance during the previous two weeks when Egyptians held anti-government protests across the country. US light crude earlier reached $103.41 a barrel before slipping to $97.28.
This has lead to concerns about the impact sustained high prices could have on the world economy.
However, there may be a big problem in the near feature: col. Gaddafi has professed he would destroy all Libyan oil production facilities. He will, if he is losing the support of his loyalist army. And unless colonels guarding the oil rigs ignore Gaddafi’s orders, oil will stop coming out of Libya.
A significant hike in the price of oil could push the world economy back into recession just as it has emerged from the previous. This is sending alarm bells through all the corridors of power.