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If Gadhafi's ousted, oil prices are expected to drop

NEW YORK — Oil prices around the world should start falling if Libyan rebels succeed in toppling Moammar Gadhafi's regime, though the full effect won't be felt for months.

Independent analyst Andrew Lipow said oil markets will likely respond today by sending prices lower in "a sign of relief that conflict has come to the end." But Lipow said it will take time for the market to erase the hefty price increase that resulted from the suspension of Libyan oil exports since the rebellion began in February.

When fighting broke out, oil was trading at around $84 a barrel. It quickly spiked above $93 and kept rising to a high above $110 at the end of April. Demand from emerging markets including China was also a factor in the rise. Oil has fallen recently along with stocks because of concerns about the global economy.

Libya used to export about 1.5 million barrels of oil a day, almost all of which have been cut off. Although Libyan oil amounted to less than 2 percent of world demand, its loss affected prices because of its high quality and suitability for European refineries.

The European refineries have struggled to make up for the production loss despite an increase from Saudi Arabia. As a result, European markets should see the first and most significant drops in oil prices, Lipow said.

Independent analyst Jim Ritterbusch said that even if rebels manage to push Gadhafi out soon, the near-term effects on oil prices will be limited.

"Psychologically anyway, it's going to force some additional selling," Ritterbusch said. "But selling may not be pronounced because there's still a lot of question marks remaining" on how long it would take for production to resume.

Michael Lynch, president of Strategic Energy & Economic Research, said that once Gadhafi is pushed out, Libya's new government could take the path of the Iraqis after the fall of Saddam Hussein and spend years fighting over every detail. Or it could follow Kuwait's example and quickly decide to bring in an outside company to get production restarted right away

"They do have a good cadre of educated people, but they don't have a long record of competent self-government," Lynch said. "It would not be a bad bet to think there might be a chaotic period for a few months till they get organized."

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