World markets heaved a collective sigh of relief yesterday, with oil prices falling as traders factored in the prospect of a resumption of exports from conflict-hit Libya.
Tripoli produced around 1.6 million barrels of oil per day before uprisings broke out across the Middle East and North Africa this spring. Exports stood at 1.3 million barrels a day until the conflict began and sanctions against Muammar Gaddafi's regime led to a sharp reductions in output, which is estimated to have fallen to as little as 100,000 barrels per day.
Europe was the main buyer, consuming about 85 per cent of the country's exports before the conflict.But signs that Gaddafi's four decade-long reign of repression was finally nearing an end sparked hopes of renewed activity at dormant oilfields. Although it is likely to be months before exports recover to levels seen before the conflict, the prospect was enough to send Brent crude down by as much as $3.46, or more than 3 per cent to $105.15 per barrel, in early trade. Prices recovered to around $107, down around 1.4 per cent, in late afternoon trading.
As oil prices fell, stock markets bounced back from the lows struck during last week's turmoil. The falls were triggered by fears over global growth and, while concerns remain, lower oil prices would offer relief to economies struggling with inflation. In London, the FTSE 100 climbed by 1.1 per cent to end the day at 5,095.3 as oil stocks, including BP and Shell, rose. Across the Channel, European markets were also strong, with the main Italian exchange, where a number of companies are exposed to Libya, closing up by 1.8 per cent. In the US, the Dow Jones index was up 1.8 per cent in early trading. But concerns about global growth continued to linger in the backdrop, driving gold prices to another record high of around $1,895 per ounce.
In Libya, a key factor in the recovery of oil exports will be the damage done to oil infrastructure and equipment, analysts said. Drawing lessons from the aftermath of the conflict in Iraq in 2003, Carsten Fritsch at Commerzbank said it may take around six months for output to rise back to around 1 million barrels per day.
"The big question is how much damage has been done to the oil facilities in Libya, where the fighting has gone on much longer than in Iraq," he said.
Highlighting the challenge, Shokri Ghanem, the country's former top oil official who defected in May, said it could take up to 18 months for output to climb back to pre-conflict levels.
In the near term, the rebel-controlled Arabian Gulf Oil Company (Agoco) said it was ready to begin pumping oil from its Sarir and Mesla oilfields in eastern Libya. An official at the company said: "When the security is OK, we will start."
Eyeing the rebel advance, foreign companies that had cut or pulled out their staff as the conflict gathered pace were yesterday preparing to re-enter the country. Italy's foreign minister Franco Frattini said workers from the energy firm Eni, a leading producer before the recent turmoil, had already arrived in the country. Austria's OMV said it was "observing the situation", while France's Total said it was monitoring the developments.
BP does not have any production facilities in Libya, but the UK group was preparing to drill its first exploration well when the conflict began, leading to the exit of about 80 foreign staff. However, the company remains in touch with local staff, and intends to resume drilling when conditions allow.
In an indication that countries that opposed tough sanctions on the Gaddafi regime may lose out once order is restored, the Agoco official said: "We don't have a problem with Western countries such as Italian, French and UK companies. But we may have some political issues with Russia, China and Brazil."Reuse content