In response to the unrest in Libya and some other OPEC member nations, oil prices have risen. Stakeholders are calling on OPEC to intervene as the unrest in Libya has caused slash in oil production.
The increase in oil price (if it remains stable) will, however, help Nigeria’s economy With the unrest and sanctions going in some OPEC nations, Venezuela, Libya and Iran respectively, the United States oil prices have climbed back above $64 a barrel, CNN reports.
The American news media reports that the current turmoil in the OPEC nations have amplified supply constraints which in turn lead to increase in oil price. Saudi Arabia has also reduced its oil production as well as exports to the US to facilitate higher prices and balance its budget.
Another report by Deutsche Welle (DW) links the oil spike directly to the unrest in Libya. The German media said oil prices jumped on Tuesday, April 9, in response to the violence in the North African country. “The key oil benchmark prices in Europe and the US jumped to two-and-a-half-year highs on Tuesday, as the markets respond shakily to the escalating violence in Libya,” DW stated.
The report adds that pressure is mounting on OPEC to free up more supplies. Libya is a major African oil producer and a member of the Organization of Petroleum Exporting Countries (OPEC), exporting most of its oil to European countries like Italy, Germany, Spain and France.
The country produces a sizeable chunk of the world’s oil, and is Europe’s third largest supplier. Brent Crude from the North Sea briefly hit $108.57 (79.44 euros) in morning trade but dropped later during the course of the day. Meanwhile, prices in the US, particularly West Texas, for future deliveries in April rose by almost seven dollars to $94.49 at one point in Tuesday trading. Most prices for imported oil on the European and US markets are based on these so-called benchmark indicators.
“It’s like one of those Australian bushfires – once it takes hold, it’s very difficult to put out,” Michael Hewson, an analyst for CMC Markets said. “Until the situation in the Middle East settles down, you are going to have very wild price swings.”
Energy stakeholders and analysts are already calling on OPEC to step in. Claudia Kemfert, energy analyst for the German Institute for Economic Research, was quoted to have said: “I think [OPEC] should get involved soon, because we need some signals for the market. Right now, if Libya was to stop oil production, we would lose 2 percent of the global oil supply.” Kemfert said OPEC should increase production capacities in other member states, so as to calm the market’s concerns over further unrest in the region hitting oil supplies elsewhere.
However, OPEC representative and United Arab Emirates energy minister Mohammad bin Dhaen al-Hamli said that the market was reacting to the violence in the Middle East, not to fundamentals, saying there was no need to free up extra oil supplies at present, despite the unrest in Libya. The countries in OPEC “are watching the situation and [are] ready to act when necessary,” Hamli said, adding that he was concerned about the Libyan situation in particular “because it is a member of OPEC and a major oil producer.” The UAE minister, however, did not specifically mention when OPEC might consider it necessary to intervene.