The price of Brent crude oil rose to $104.6 a barrel on Monday morning, its highest level since September 2008, driven by fears over the violent unrest in oil-producing Libya.
An influential Libyan tribal leader has threatened to cease oil shipments to the West within 24 hours if violence against protesters does not end. Meanwhile, Libyan leader Colonel Muammar al-Gaddafi has threatened to cut oil supplies to the EU, unless it retracts its support for the protests.
"Market concerns are well-founded given the strategic importance of Libya and supply disruption risks", Michael Lewis, a commodity analyst at Deutsche Bank, told FT Tilt.
Fears that oil supplies from the Middle East and North Africa region to the Mediterranean basin will be disrupted has caused the Brent crude oil price to command a record 23 per cent premium, or $19.3 per barrel, over West Texas Intermediate (WTI), the US oil price benchmark. This compares with a $1-2 price differential historically. The WTI price is centred on the stockpile of oil at the Oklahoma storage in Cushing. US oil inventories feed domestic consumers and have been rising in recent months, said Lewis. As a result, the Brent oil price better reflects market fears over oil supply disruption risks and the outlook for global oil prices this year, said Lewis.
Opec member Libya pumps out 1.57m barrels of crude oil per day, about 1.2 million barrels of this is exported. Some 1.06m barrels are shipped to Europe, with the Europe and Eurasia region consuming 19.3m barrels daily in 2009, according to BP.
Algeria -- which has also been swept by a wave of anti-government protests this weekend -- and Libya are typically considered modestly-sized exporters of crude oil. However, Credit Suisse in a report noted that:
..if one adds up everything they [Algeria and Libya] supply they are responsible for a combined 3.27-m b/d in liquid exports of crude oil, NGLs, condensates, LPG and petroleum products. By contrast, Iran is normally considered one of the giant producers in the world, with recent output of 3.65-m b/d, second in OPEC only to Saudi Arabia. However, when it comes to exports, because of Iran's rapidly growing domestic consumption it and Yemen combined supply 2.955 of liquids to global markets, less than Algeria and Libya.
Source: Credit Suisse
According to BP, Libya has 44.3bn of proven oil reserves, at the end of 2009, representing 3.3 per cent of the global reserves pool. Foreign oil companies have smashed into the Libyan oil market in recent years. BP has embarked on a new deepwater exploration campaign, and Italy's Eni announced in December billions of dollars of plans to develop new fields in the country.
Stay tuned for details on the market fallout of the Libya crisis.
Coverage of MENA crisis - FT Tilt