Libyan turmoil driving crude prices ever higher

Oil prices continue to rise amidst fears that violent unrest in Libya will not only cut off supplies from that nation, but perhaps spread to other, larger oil producers, including Saudi Arabia.

Brent crude oil futures nearly reached $120 per barrel in early trade this morning, before easing back to about $115. U.S. light crude climbed as high as $103.41, then slipped back to just under $101.

Prices have not been this high since the late summer of 2008.

Some analysts warn that crude prices will likely keep rising, as long as the morass in Libya remains unresolved.

Deutsche Bank warned that if oil crossed the $120 per barrel, it could derail global economic growth.
Crude is certainly edging closer to a level that is viewed by our colleagues as a key threat to global growth, Deutsche said.

$120 a barrel is the level that oil as a share of global GDP starts to move above 5.5 percent... which has historically been an environment where global growth has come under pressure.

BNP Paribas predicted an average price of $117 per barrel for Brent crude in the second quarter of this year.

Given the level of uncertainty, the revision is a conservative stab in the dark, the bank said.

Reuters market analyst Wang Tao said Brent could reach $158 per barrel in this year, well above its 2008 high of $147.50, while he thinks U.S. crude might soar to $159 per barrel.

Several foreign oil explorers have shut down or significantly reduced their operations in Libya, which supplies about 2 percent of global oil consumption. The United Arab Emirates, Iran and Saudi Arabia account for about 3.2 percent, 5.3 percent and 12 percent, respectively, of global oil output, according to the International Energy Agency (IEA).

Reuters estimates that roughly 400,000 barrels per day have been cut from Libya’s 1.6-million bpd production.

Much of Libya’s most important oil production facilities are located in the eastern part of the country – areas that Moammar Gaddafi has reportedly lost control of.

Saudi officials have assured that they can provide for any shortage in global supplies arising from Libya’s absence in the oil markets.

However, Amrita Sen, an oil analyst at Barclays Capital, told reporters: Unless we see an explicit move from... producer countries, i.e. Saudi Arabia, I don't think there is necessarily going to be any downward pressure on oil prices.

More worrying is the potential for further unrest in the Middle East, which would further cut into oil production.

The market cannot accommodate another disruption, in our view, with the problems in Libya potentially absorbing half of OPEC's spare capacity, said Jeffrey Currie of Goldman Sachs in a research note.

“The stakes associated with further contagion are now much higher, which creates even further upside risk to our price forecasts.”

However, at least one prominent observer thinks fears of ever-escalating oil prices are overdone.

“I do not believe that oil prices will go up constantly” said Juergen Hambrecht, the chief executive of German chemical maker BASF, which has oil and gas operations in Libya through its Wintershall subsidiary.

Speaking to BBC, he believes that prices have climbed on speculation and that they would stabilize once the picture in Libya clears up.

There is a lot of speculation in it, fear priced in, he told BBC. I believe as we go forward the situation will calm down and the oil price will stabilize again. So for the time being I do not see a major impact on our earning power going forward, besides the effect that we stopped production in Libya.