Oil prices waffle on UNSC resolution, Libya's ceasefire

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 18 -- Oil prices were volatile in trading Mar. 18 after Libya’s government agreed to halt military operations in the country following the Mar. 17 vote of the United Nations Security Council (UNSC) for air strikes against forces loyal to the country’s leader Moammar Gadhafi.

“We’re looking at an incredible number of bullish and bearish factors which have locked this market in place,” said Phil Flynn, vice-president of research at PFGBest in Chicago. “Prices fell on the announcement of the ceasefire, but are moving back up because it seems meaningless,” he said, expressing a view that was shared by others.

"Mr. Gadhafi has declared a ceasefire but you know, he's made so many declarations—each one more exotic than the last, each one more frightening than the last over the last week," said French Foreign Ministry spokesman Bernard Valero. "This man's credibility is gone, no one can trust him," Valero told AP Television News after UNSC met Mar. 17 to endorse a resolution that authorized "all necessary measures" to prevent attacks on Libyan civilians by the Gaddafi regime.

UNSC also enforced a no-fly zone to prevent air attacks, strengthened an arms embargo against Tripoli and reinforced a freeze on the financial assets of Gadhafi and his aides.

UNSC’s assets freeze took in Libya’s state-owned National Oil Co., as well as its head Shukri Ghanem, who was accused of “trying to sell heavily discounted Libyan oil to fund the regime.”

The human rights group Global Witness said it “welcomes and supports” the UN's decision to freeze the assets of the Libyan regime including those of the NOC.

“Freezing NOC's assets will help prevent the regime from accessing payments made for Libyan oil and using them to fund violence against Libya’s citizens,” Global Witness said.

As a result of the UNSC resolution, the global benchmark rose to near a 2½-year high of $117.29/bbl in London, with traders fearing that the country’s oil fields and infrastructure could be damaged by new hostilities.

But uncertainty continued to dog the market even after Tripoli pledged to cease hostilities and open negotiations with the country’s opposition leaders.

"This does not mean we near a resolution of the situation in Libya," said Harry Tchilinguirian, an analyst at BNP Paribas. "We may be facing the possibility of an entrenched status quo between pro- and anti-Gaddafi groups. "This only maintains the uncertainty in terms of when we will eventually have a full resumption of production in Libya," Tchilinguirian said, as the cost of Brent crude fell after the announcement by Tripoli.

Echoing earlier remarks by the International Energy Agency, other analysts see Libya’s exports falling off completely for a protracted period of time.

“Libya, and the truncation of its exports, is likely to remain a major issue for the markets for the rest of this year and into next,” said Paul Horsnell, head of commodities research at Barclays Capital.

Libya was producing 1.69 million b/d before its recent unrest, according to the International Energy Agency, of which 1.2 million b/d were exported, mostly to Europe. But IEA said this week that Libya's oil exports would "remain off the market for a considerable time."

Meanwhile, the specter of damage to the country’s oil facilities was raised by further reports on Mar. 18 that conflict continues to rage in Libya, despite the government announcement of an “immediate” ceasefire.

Witnesses in the western city of Misrata said a progovernment assault is persisting and casualties are mounting as countries backing the council's move, such as Britain and France, get their military resources into place to enforce the measure. 

Britain, France, and other members of the North Atlantic Treaty Organization were holding emergency meetings Mar. 18 on enforcing the no-fly zone, but there was no word yet from the US military on what role it may take.

Details have not fully emerged of how an international military operation might unfold in Libya or how it could affect the country’s oil and gas infrastructure.

French government spokesman Francois Baroin would not comment on “where, how, what target, or in what form” the air strikes would take.

Contact Eric Watkins at hippalus@yahoo.com.

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