The price of Brent crude fell by more than a dollar Monday to around $107 a barrel as the six-month civil war in Libya that disrupted the OPEC-member’s oil (NYSE:USO) exports seemed to be coming to an end. Libyan leader Moammar Gaddafi’s compound in Tripoli was surrounded by Libyan rebels late Sunday, his son Saif al-Islam was captured, and his presidential guard surrendered.
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While Brent prices dropped on the prospect that Libyan rebels could soon put an end to the conflict that has disrupted a significant amount of the world’s oil supply, it is still unclear if and when Libya will be able to resume its normal levels of output. As of 8 a.m. EDT, Brent crude had fallen $1.30 to $107.32. U.S. crude was up as the dollar weakened, rising $1.24 to $83.50.
Before the conflict in Libya began, the country was responsible for nearly 2 percent of the global oil (NYSE:OIL) supply, pumping 1.6 million barrels per day. When the valuable supply line to Europe was closed, Brent climbed as high as $127.02 in April. Output in Libya has fallen to almost nothing, but technical staff from Italy’s oil and gas major ENI are already in Libya looking into restarting its oil facilities.
Carsten Fritsch, an analyst at Commerzbank in Frankfurt, says it could be six months before Libyan oil refineries increase output to 1 million barrels per day. Olivier Jakob, oil analyst at Petromatrix, expects that early oil output will probably go to local refineries as the country rebuilds, and exportation will come later.
The 120,000 bpd Zawiyah refinery, believed to be the last operating refinery in Libya, was captured last week by rebels after providing Gaddafi forces with fuel for months. Tight supplies of light sweet crude (NYSE:USO), which Libya produces, resulted in a widening spread between the prices of Brent and U.S. crude, which reached a record of $26.69 last week.
However, keeping prices from dropping too drastically, according to Fritsch, is the anticipated possibility of a third round of quantitative easing, which U.S. Federal Reserve Chairman Ben Bernanke could announce Friday after an annual meeting with policymakers and academics in Jackson Hole, Wyoming. “Talk of QE3 will prevent a steeper price drop for the moment. Prices will remain above $100 for the time being,” said Fritsch.
Finally, just as Libyan crude looks as though it will soon be back on the market, Syrian oil (NYSE:USO) exports could be the next to be cut off, as the U.S. announced sanctions against Syrian exports last week, and the EU is also considering an embargo.