Libyan President Moammar Gadhafi salutes a crowd on Oct. 29, 1997.Enric Marti
It appears that Libyan dictator Moammar Gadhafi has been killed – which of course leads directly to thoughts about crude oil. No big moves here: In New York in late morning trading on Thursday, West Texas Intermediate oil traded at $85.79 (U.S.) a barrel, down 32 cents. Brent crude, which is the North Sea benchmark, rose 71 cents, to $109.10 a barrel. So, shrugs all around.
The price of oil shot higher earlier this year when political unrest in Libya resulted in the country's oil taps being shut. While the country isn't a big oil producer, economists pointed out that energy supplies are so tight that even a modest dip in supply can create a relatively large increase in the price. The International Energy Agency was so freaked out that it ordered the release of 60 million barrels from strategic reserves in June.
However, the downfall of Gadhafi hardly comes as a surprise, given that he had lost effective control over Libya some time ago. Indeed, reports in August and September were already looking at post-Gadhafi Libya, with the New York Times noting two months ago that BP PLC, Eni SpA, Total SA and OMV AG were the global energy companies most likely to benefit from a regime change. BP shares were down 0.9 per cent in New York.
What could change now, though, is the spread between West Texas crude (the U.S. benchmark) and Brent, where prices have recently diverged by about 25 per cent, with Brent prices moving considerably higher than WTI crude. Gas prices in North America have tracked Brent crude, which has effectively boosted prices at the pump. Bespoke Investment Group noted that one of the key explanations for the spread is that the Libyan dispute disrupted supplies of light sweet crude to the European market.
"Optimists will argue that the Libyan uprising caused the spread to widen, so some resolution to the conflict should help to resolve the divergence," Bespoke said on its blog. "On the other hand, Libya still remains a country immersed in a civil conflict, which isn't likely to abruptly end now that the former ruler, as despised as he may have been, is out of the picture."
David Berman