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February 24, 2011 at 05:56 AM
Worries that the rebellion in Libya would spread to other countries in the Middle East/North Africa (MENA) region, and the drop in output from that nation’s oil exports, caused the price of oil to soar on Thursday. It rose more than 7.5% to its highest since August of 2008. Brent crude April futures also rose, gaining $8.54 per barrel to hit $119.79 before dropping back to approximately $114.00 by 5.35 AM EST.
Reuters reported that, by its calculations, Libya’s normal 1.6 billion-barrel-per-day output has fallen by at least 400,000 barrels due to the unrest. However, Paolo Scaroni, chief executive of energy company ENI, had a much more dire estimate. He told reporters in Rome, "There are 1.2 million barrels [per day] less on the market."
The disruption is causing considerable concern among analysts. Much of Libya’s oil comes from the eastern part of the country, which is no longer under the control of Muammar Ghaddafi, so despite his efforts to maintain his hold on the nation, its most precious resource is not within his grasp.
Goldman Sachs said that severe shortages and perhaps even demand rationing could result if political unrest spreads to other MENA nations. Analyst Jeffrey Currie said in a research note, "The market cannot accommodate another disruption, in our view, with the problems in Libya potentially absorbing half of OPEC's spare capacity." And according to Reuters market analyst Wang Tao, Brent crude could hit $158 per barrel in 2011, with U.S. crude possibly going as high as $159.
