A worker checks gauges at the Cushing, Okla., oil terminalJames Gutzmer
Energy companies on this side of the globe have looked enviously this year at their European counterparts and the price they received for crude, and while Libya's production sabbatical may be ending, volatility and the price gap are likely to remain.
The world's two key oil benchmarks – Brent crude in Europe and West Texas intermediate in North America – are out of sync, with Brent outpacing WTI by about $24 (U.S.). Brent bounced around on Monday, shedding 26 cents to close at $108.36 a barrel, after dropping as low as $105.15 as traders mulled Libya's shaky new reality. WTI climbed $1.86 to end at $84.12.
Libya's fragile political situation is to blame for Brent's instability, while WTI, which has been under pressure because of a supply glut at refineries in Oklahoma, traded upward thanks to the unusual combination of weather and potential financial stimulus, analysts said.
While Brent lost ground yesterday, Libya's uncertain timeline could reinforce Brent's advantage over WTI, said Ralph Glass, director of energy valuations and operations at AJM Deloitte in Calgary.
"I still see that spread existing," he said. "It will keep the spread" wide.
Suncor Energy Inc., the oil sands company that inherited assets in Africa when it took over Petro-Canada, is the highest-profile Canadian company with projects in Libya.
North American oil prices have been harnessed by a supply glut at Cushing, Okla., a refining powerhouse. The relatively new Bakken light oil play, blanketing parts of Saskatchewan, Alberta, North Dakota and South Dakota, are partly to blame for the excess oil. While this problem remains, politics is also influencing WTI's movements.
It gained ground yesterday amid hopes that the U.S. Federal Reserve may unveil new stimulus measures aimed at boosting the U.S. economy, said Bart Melek, an oil analyst with TD Securities.
"Oil is benefiting from expectations that the Federal Reserve will take some sort of action in order to backstop the market," Mr. Melek said.
Other analysts pointed to the potential impact of Hurricane Irene, which could affect U.S. oil and gas production in the Gulf of Mexico.
"While the winds of change are tanking the Brent crude market, the winds of Hurricane Irene are supporting West Texas intermediate," said Phil Flynn, of PFGBest Research.
With files from AFP
Carrie Tait