Brent crude oil declined in Asia Monday as Libya's geopolitical tensions, which began in February and has suspended oil production in the major oil exporter to Europe, have shown signs of coming to an end. The front-month contract of Brent crude oil fell to as low as 106.15 from Friday's close of 108.62. This also narrowed the WTI-Brent spread to 24.00 from Friday's 26.36. Sentiment remains cautious as investors await Fed Chairman Ben Bernanke's Speech at the Jackson Hole Symposium on August 26. It's widely expected that the Chairman will signal additional easing measures to prevent the US from entering in a recession again. Yet, it's not certain what Bernanke announces will be enough to restore market confidence. Demand for safe-haven assets remained with gold edging to a new record high of 1881.9 earlier today.
North Atlantic Treaty Organization (NATO) said that Qaddafi's 'regime is clearly crumbling' while the US urged rebels to 'plan for post-Qaddafi Libya as they took Capital Tripoli. While the colonel's whereabouts were unknown, his 2 sons were reported of being captured. The rebels celebrated with gunfire, singing and dancing, and said that the regime will end in hours.
The impact of the news on oil prices is no less than concerns over economic slowdown. Production in Libya, the largest holder of proven oil reserves in Africa and the fourth largest oil producer in the region before outbreak of the crisis, slumped to 53K bpd in July from normal output of about 1.5M bpd. It's expected that the country's oil facilities can resume operation soon as tensions eased. This will create a problem of 'oversupplied'. Indeed, oil disruption in Libya has triggered Saudi Arabia to increase its production. According to OPEC's latest report, the cartel's total oil production has exceeded pre-crisis levels since June.
If oil production in Libya returns to normal, European oil prices will be more affected than US ones as 85% of the country's oil is exported to Europe, including Italy, France, Germany and Spain. According to DOE/EIA's estimate in March, Italy alone took up 28% of Libya's oil exports last year (Jan to Nov) and was the biggest importer of the country's oil while each of France, Germany and Spain imported at least 10% of Libya's oil. While China and the US took up 11% and 3%, respectively, of Libya's exports in the first 11 months of 2010, these countries were less dependent as Libyan oil was only around 3% China's imports 0.6% of US' imports during the period.
We have a light calendar today with only Chicago Fed national Activity Index probably falling to -0.48 in July from -0.46 a month ago.