Oil prices continue to soar – going above $110 a barrel on Wednesday – as a quarter of Libya’s crude output has been shut down and energy companies warn of further production cuts.
But Libya exports just two percent of the world’s oil needs and Fadel Gheit, an oil analyst at Oppenheimer & Co, believes the price spike is built on speculation and fear: “The market is reacting pretty dramatically because of the fear of the unknown. We don’t know if the situation in Libya is going to spread. If Libyan oil exports will be impacted and by how much.”
Saudi Arabia, which supplies around 10 percent of the world’s oil and holds most of the world’s spare capacity, quickly said it would pump more if needed.
Saudi Oil Minister Ali Al-Naimi told reporters: “All these price disorders aren’t caused by a shortage in supply. But OPEC and Saudi Arabia are fully prepared to meet any future supply shortage. We’ve done this in the past, we’ve succeeded in supplying the market, and getting the market back to stability.”
However some think that much of the surge in crude prices is not due to events in the Middle East and North Africa, but because oil has been at an unrealistically low level for a while.
Investment strategist Stephen Wood of Russell Investments explained: “China’s growing too hot, Brazil’s growing too hot, North America’s doing OK. Germany logged their best economic performance in 20 year. So there’s a global growth story and global growth requires oil. So not all of it is Mideast tension.”
Meanwhile, the International Energy Agency has warned that oil prices above $100 a barrel for the rest of the year could drag the global economy back into a repeat of the 2008 economic crisis.