International oil prices sank Monday, amid hopes that exports from Libya could pick back up in coming months, but it might be some time before the United States sees a significant drop in cost.
London’s benchmark Brent oil price for October delivery fell 26 cents and settled at $108.36 a barrel, after reports circulated that Libyan rebels had overrun forces loyal to Col. Moammar Gadhafi and captured most of the nation’s capital, Tripoli. Europe’s markets, which have been greatly affected by the events in Libya, saw bigger declines than the United States.
Meanwhile, New York’s West Texas Intermediate (WTI) ticked up $1.86 to $84.12 a barrel, affected less by the events in Libya and more by the health of the U.S. economy and supplies.
“The return of Libya oil is going to have a much more dramatic impact on overseas prices, which will eventually affect oil prices over here,” independent oil analyst Andrew Lipow said. “It’s going to be several months before we see the return of oil production.”
For most of the year, Libya’s civil war has cut off about 1.6 million barrels of oil a day from the rest of the world, particularly European markets, thus raising prices around the globe. So the recent success from the rebels is raising hope that Libya can return to producing oil sooner rather than later.
“The more oil that’s in the global marketplace the better,” PFGBest analyst Phil Flynn said. “If we can get a stable Libya, we can expect lower prices in oil production.”
But concerns linger about whether that will happen and, if it does, the timing involved.
“There’s lots of things that can go wrong in the chain of events,” Deutsche Bank analyst Adam Sieminski said.
Analysts say oil companies will need to assess the damage before their systems begin moving forward. It will take time for Libya’s oil fields and pipelines to get back to full capacity.
Concerns also exist about how quickly the rebels can form a government, and whether that government will be conducive to oil exports.
“There’s certainly continued political instablity in the region,” said Rayola Dougher, senior economic adviser for the American Petroleum Institute.
Libya’s production also will depend on how comfortable international companies are about sending their employees back to the ravaged north African nation.
Italian oil company Eni, for one, already is sending technicians back to work on restarting the oil and natural gas production in Libya, according to Italian Foreign Minister Franco Frattini.
Eni, the largest foreign oil company in Libya, has said it could take a while — a couple months for natural gas and a year for oil — for things to be up and running again.
Other companies, however, may not be so adventurous.
“Without a stable business environment, companies may be reluctant to commit lots of capital and people to get oil flowing again,” Mr. Sieminski said.
These holdups eased the decline in Brent prices, which at one point had dropped to $105.15 a barrel. As the kinks are worked out over the next few months, it could continue to drop further.
Europe, which receives most of Libya’s oil, will notice the biggest initial drop in crude oil prices, analysts say, while it could take months for the U.S. to see a notable decline.
Gas prices, on the other hand, could immediately begin to drop, with some estimates as high as 25 cents during the next few months after production begins.
In New York, WTI gained with expectations that the U.S. Federal Reserve might institute new stimulus measures to boost the economy and increase demand in the coming months, analysts say.
• Tim Devaney can be reached at tdevaney@washingtontimes.com.
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