Brent crude fell almost $2 today towards $106 a barrel with traders and investors anticipating the resumption of oil exports from OPEC-member Libya as a six-month civil war there appeared close to an end.
Rebels swept into the heart of Tripoli and crowds took to the streets to celebrate what they saw as the end of Muammar Gaddafi’s four decades in power, with government tanks and snipers putting up only scattered, last-ditch resistance.
Brent crude was down $1.99 to $106.63 at 0951 GMT.U.S.crude was up 60 cents to $82.86 a barrel after dropping to as low as $81.13 earlier. The front-month September U.S. crude contract expires on Monday.
“Brent is taking more of a battering but that’s only to be expected,” said Christopher Bellew, a trader at Jefferies Bache. “The divergence is just another graphic example of the dislocation between WTI and Brent.”
Libya pumped around 1.6 million barrels per day (bpd), nearly 2 percent of global supply, before the war cut output. Most of Libya’s high-quality crude flowed to European refiners, but after Libyan exports ceased, tighter supply drove Brent to a two-year high of $127.02 in April.
Output has fallen to almost nothing during the conflict but technical staff from Italy’s oil and gas major ENI have already arrived in Libya to look into restarting oil facilities . How quickly this can be achieved is a key question for the market. Carsten Fritsch, an analyst at Commerzbank in Frankfurt, said it could be about six months before output climbs back to 1 million bpd or so, having examined what happened in Iraq in 2003.
“Output was close to zero in the months after the U.S. invasion,” he said. “The big question is how much damage has been done to the oil facilities in Libya where the fighting has gone on much longer than in Iraq. There’s a risk it may take a bit longer in Libya.”
The premium that has been in the Brent oil price since civil war broke out in Libya should now start to shrink, but Fritsch said this is unlikely to happen overnight.
