Gaddafi’s fall: Boost for markets but a tough week still awaits

22nd August 2011

Shaun Richards, Mindful Money's economist blogger said the news had given markets a most welcome boost.

"One economic side-effect of this is that the oil price has fallen this morning as hopes rise for a resumption of normal oil production.

"The price of a barrel of Brent crude has fallen by more than 2% to U.S $106.40 which should be welcomed by a world still suffering from the effects of the rise in the oil price of early 2011.

"However let us hope that the Gaddafi regime does not have any tricks up its sleeve in terms of a "scorched earth" policy.

Perhaps such thoughts are now influencing the oil price as it had previously fallen by 3%."

The Financial Times (paywall) reported how at the start of the civil war, Libya produced about 1.6m barrels a day of high quality, low sulphur crude oil, but that this had been reduced to a "trickle" of just 50,000 barrels a day.

On The Guardian analysts believe Libya could be pumping as much as 1m barrels a day within months, close to the pre-war figure, which accounts for nearly 2% of global supply.

Libya's civil war, which started in February had sparked fears of an oil crisis and at the time drove Brent crude to a two-year high of $127.02 in April.

Caroline Bain, an economist at the Economist Intelligence Unit, was quoted on the Guardian website. She said: "It could take two to three years before output in some of Libya's more mature fields is restored. However, the prospect of resumed output from Libya will remove some of the political risk premium in the oil price."

What does this mean for petrol prices? Well according to the BBC News website not much. The price of petrol, which is just off its 137.5p per gallon May 2011 peak in May this year is unlikely to fall any time soon.

Victor Shum of Purvin and Gertz told the BBC that in the long run, macroeconomic issues will play a huge role in determining which way the oil prices are headed.

The FTSE in London, which had fallen 40 points in early trading was last 80 points higher at 5122 by early afternoon. France's CAC was up 1.7% and Germany's Dax edging 0.3% higher. US stock futures indicate the Dow Jones will open nearly 70 points higher.

Markets are eagerly awaiting a speech from US Federal Reserve chairman Ben Bernanke on Friday in Jackson Hole, Wyoming. They will scrutinise his remarks for any hints on how America's central bank will tackle the worsening economic outlook and turmoil in financial markets.


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