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Oil prices volatile while world waits for Libya

August 22, 2011 |  1:16 pm

Oil Oil prices were roiling Monday as Libyan rebels made further progress toward ousting leader Moammar Kadafi, raising hopes that the country’s conflict is drawing to a close at a time of global economic uncertainty.

Analysts said that the overthrow of Kadafi would increase chances that Libya will resume oil exports, which had ground to a halt during the six-month conflict. That could lead to some easing of gasoline and diesel prices.

Brent crude, which is used to price many international oil varieties, dropped $0.26 to $108.36 a barrel for October on the ICE Futures Exchange in London. However, crude oil futures were up $1.86 to $84.12 a barrel in trading on the New York Mercantile Exchange after falling as low as $81.13 earlier in the day.

“This Libyan situation comes in the backdrop of uncertainty with the U.S. and European economy, which is also impacting the price of oil,” said Phil Flynn, an oil analyst at PFGBest Research in Chicago. “This is why we’re seeing so much volatility, because there is so much uncertainty.”

The AAA Fuel Gauge reported that gas averaged $3.57 a gallon nationwide and $3.73 a gallon in California.

Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey, said that many traders in the oil market were “jumping the gun” by optimistically guessing that Kadafi’s overthrow would lead immediately to an bump in the global oil supply.

“Libya was the No. 1 reason keeping U.S. gas prices stubbornly high this summer,” Kloza said. “But it struck me that people are assuming Kadafi would be overthrown and Jimmy Carter would take over.

“The reality is that you need utilities and everything that comes with a workable government to get things reinstated. You don’t have a national oil company there anymore. You need pipes and ports restored. You need oil companies partnering with Libyan entities to come back, and they need to know it'll be safe.”

Flynn said that about 50% to 75% of Libya's production may resume within a few months. But analysts cautioned that the oil exports ramping back up to pre-conflict levels are unlikely anytime soon.

“But we have probably seen our high for the year" on gasoline, Flynn said. “I think we won’t hit $4 again.”

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-- Shan Li

Photo: Pat Wellenbach / AP Photo

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