By Phaedra Friend Troy
Trading at two-and a-half-year highs, the price of oil jumped in trading Friday to reach an intra-day spike of $104.94 on the New York Mercantile Exchange due to escalating violence in Libya.
“The markets are very nervous about what’s going to happen over the weekend in Libya,” said Phil Flynn, leading energy trader with PFG Best in Chicago.
Opening at $101.70 a barrel, the price of West Texas Intermediate climbed to just below $105 a barrel on the NYMEX Friday, spurred by violent clashes in the OPEC-member nation of Libya. In London, the price of Brent crude rose above $116 a barrel.
“The market is moderating demand because of the grave threat to supply, and that’s what markets are supposed to do,” he added.
Libyan Clashes Push Oil Prices Higher
Violence has spread across Libya, with forces loyal to Muammar Gaddafi attacking cities held by rebels. According to Reuters, gunmen opened fire into a crowd as a dispersion method in the capital of Tripoli.
AP reported that Gaddafi troops conducted airstrikes near a pivotal oil terminal in the North African country, and Al Jazeera television is reporting that an oil facility in Zueitina is damaged and ablaze.
Although third in oil production, Libya holds the largest proven oil reserves in Africa, according to the US Energy Information Administration (EIA).
“The risk to the oil market is high,” said Flynn. “We’ve actually lost some real oil in Libya – the threat is real.”
Raising its estimate over the week, the International Energy Agency (IEA) reported that Libyan oil production had dropped drastically due to the violence, with 1 million barrels a day shut-in of its total 1.6 million barrels a day.
In addition to damaged facilities, various operators have curtailed production in the country, evacuating international staff from the erupting violence.
Threat to MENA Oil Supply
“The real risk is the entire region,” Flynn said. “You’ve got a civil war in an OPEC country, and you’ve got three or four countries that run the risk of civil war.”
Fears of diminished oil supplies from spreading civil unrest in North Africa and the Middle East have supported the recent price gain. Protests in Iran, Algeria, Yemen, Oman and Bahrain run high risks of disrupting oil supply, Flynn explained.
Additionally, civil unrest has been reported in other MENA countries, including integral OPEC oil-producer Saudi Arabia, “where protesters are calling for a day of rage,” Flynn added.
Oil prices skyrocket to $105 on escalating violence in Libya
By Phaedra Friend Troy