Oil Markets react as battle rages in Libya

August 23^rd, 2011: Libyan rebels have overthrown successfully Moammar Gadhafi, a long time dictator; sparking analyst remarks immediately, that say the oil will trickle back in the market in few more months. But to return back substantially might take few years.

This event pushed benchmark oil up for upcoming October delivery by $1.34%, reaching $85.76 in the New York Mercantile Exchange’s electronic trading. London witnessed a 29 cents increase in Brent Crude thus reaching to $108.65 on ICE futures exchange.

The oil infrastructure in Libya is massively damaged leading to a sharp fall in crude output from 1.5 billion barrels a day to 60,000 barrels. A recent report by Goldman Sachs apprehends Libya’s oil production to average to 250,000 barrels a day by the coming year.

If the production of crude increases in Libya, analysts expect Brent to drop back below $100 and reach $85 by the year 2012. However with Brent crude prices plummeting further it is rather unlikely that there would be markets flooded with oil.

In Nymex trading for October contracts, heating oil rose by 2 cents and climbed to $2.93 per gallon whereas gasoline futures were at $2.71 per gallon. Brent is more affected by the Libyan crisis as compared to the WTI. The West Texas Intermediate, light sweet crude increased by $ 1.29 cents for October delivery.

Thus a Manoucher takin, a senior petroleum analyst at the Center for Global Energy Studies in London says, the return of Libyan oil production will in fact be a gradual process.