Turmoil In Libya Affects Oil Prices
STEVE INSKEEP, host:
NPR's business news begins with Libya and the world oil market.
INSKEEP: Libya's turmoil is affecting oil prices. The price of Brent crude oil topped $110 per barrel this morning. That's a price not seen since 2008.
We wanted to get a little more insight, so we've reached Justin Urquhart Stewart, director of Seven Investment Management in London.
Welcome to the program.
Mr. JUSTIN URQUHART STEWART (Director, Seven Investment Management, London): Good morning. Thank you.
INSKEEP: I think Americans are always a little startled that oil climbs so quickly when there's a crisis. Isn't there oil in the pipeline, so to speak? Why has oil already gone up so quickly?
Mr. STEWART: It is actually quite remarkable because, in fact, there is no shortage of oil. There are lots of oil sloshing around, and if Libya was to switch off all the taps tomorrow, there would still be available oil, although, obviously, in the medium term, you'd obviously want further alternatives to be made available.
But, unfortunately, this market is very open to quick trading and people will react very swiftly in terms of their trading attitudes. And we've seen a very sharp spike in all the different styles of oil around the world.
INSKEEP: Trading attitudes, does that mean speculation?
Mr. STEWART: A certainly amount of it certainly has been speculation. Obviously, you get some people trying to hedge their positions. Other people are just actually seriously concerned that there could be this not just a Libyan issue, but throughout North Africa and the Middle East, seeing this contagion occur, what could happen next? And add to the level of nervousness with Iranian warships going to through the Suez Canal and appearing off the coast of Israel and other issues relating to inflation and commodities elsewhere, and you've got a room for nervousness and that's reflected in the oil price.
INSKEEP: When you say try to hedge their position, that means you're a company, you consume oil, you see that prices are going up and you reach out and buy some now, even at that high price because you fear it might go higher?
Mr. STEWART: Precisely. So, you've seen in a lot of the airline stocks, for example over the years, those that have successfully hedged their position on the basis they were fearful of actually prices going up. Of course, you never get to hear of it going the other way around because they also make some terrible decisions and find themselves buying at the high levels.
(Soundbite of laughter)
Mr. STEWART: Which way it goes from here? Well, actually, nobody knows.
INSKEEP: Well, how much oil does Libya produce?
Mr. STEWART: Well, they're producing at the moment around about sort of seven percent of actually the requirement for the world. But, in fact, if you look at the European dependence upon it it's obviously more because of its proximity obviously to Italy and Southern Europe. But overall, it's nowhere near as powerful as say, Iraq, Kuwait, the United Arab Emirates and, of course, Saudi Arabia.
INSKEEP: When we hear about oil company employees being brought out of Libya, is production coming to a halt?
Mr. STEWART: Yes, production certainly is coming to a halt as, of course, is further exploration. And only today we've had some really very worrying examples of some 300 people stuck in camps in the desert running out of food and water over the next 24 hours and not getting any help from their governments. This, of course, actually comes to no surprise actually, for those who've actually worked overseas around the world. It's normally the governments that are the last people to react to actually come and get you out of those situations.
INSKEEP: In past crises, Saudi Arabia or other countries have simply said well, we'll produce more. Don't worry about this. Do the Saudis or anyone else have the capacity to make up for Libya's oil?
Mr. STEWART: Very easily indeed. There's more supply around and so, therefore, they could actually turn on the taps if they so wish to, and as could the UAE as well. Will they do so? Well, they've got to handle things quite carefully at the moment. The North Africa and the Middle East are not one homogenous group; very different styles of people, different regimes and different local attitudes as well. So the revolution in Tunisia is very different from that of Libya or Egypt or even what we're seeing in Bahrain. So Saudi will actually handle this quite carefully because they just don't want to be seen to be those people who are just bailing out the West again. They also want to be seen to actually be people who are strongly supporting and standing up for Middle Eastern and Arab attitudes. But at the same time, also, in their own interest, making sure there's a solid stable market.
The Saudi's don't want to have prices too high or too low. What they want is an oil version of Goldilocks - not too hot, not too cold. I like my porridge and my oil quite warm.
INSKEEP: Justin Urquhart Stewart is the director of Seven Investment Management in London.
Thanks very much.
Mr. STEWART: My pleasure.
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