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Oil Prices Reflect Fears Unrest Will Spread

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Oil Prices Reflect Fears Unrest Will Spread


Oil Prices Reflect Fears Unrest Will Spread

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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The unrest in Libya has oil prices surging around the world. In New York they reached a two-and-a-half-year high today, nearly $94 a barrel. And that, in turn, sent stock prices down. The spike reflects fears that political turmoil could spread to the world's biggest oil producers.

NPR's Jim Zarroli reports.

JIM ZARROLI: After the Lockerbie bombing, the United States imposed economic sanctions on Tripoli. For many years, U.S. companies were barred from doing business with Libya. Once the sanctions were lifted, companies like Marathon Petroleum and Exxon Mobile rushed to take a piece of Libya's huge oil reserves.

Energy analyst Fidel Gate of Oppenheimer and Company notes that they had to pay dearly to do business with the Gadhafi regime.

Mr. FIDEL GATE (Energy Analyst, Oppenheimer and Company): Gadhafi and his cronies put their money - this money in the bank accounts. And obviously that's why the people are rioting because they don't see a cent trickling down to them.

ZARROLI: Gate says partly as a result of the sanctions, Libya's oil industry hasn't developed as fast as it could. It produces about 1.8 million barrels of oil a day, about two percent of the world's output. And even if Libya stopped producing oil all together, there's enough spare capacities in other countries like Saudi Arabia to make up for the loss.

But the unrest in the country has sent a shiver through the oil markets. Gate says with the world economy recovering, there's a growing demand for oil right now.

Mr. GATE: In a tight market, for whatever reason, any perception of supply disruption will have an impact on price.

ZARROLI: Gate says the sheer lack of reliable information coming out of Libya right now has made the markets especially nervous. Gadhafi's decision to declare force majeure over its oil contracts today was another worrisome sign. It allows the regime to break any contracts it signed with oil companies. David Pumphrey is an oil expert at the Center for Strategic and International Studies.

Mr. DAVID PUMPHREY (Oil Expert, Center for Strategic and International Studies): It usually indicates there are deeper troubles, so I think many people are watching now to see what is the reason for this and what does it mean for Libyan exports into the marketplace.

ZARROLI: But what's really scaring the markets, he says, is what the Libyan unrest says about the region as a whole. The first two countries to be swept up in the unrest, Tunisia and Egypt, weren't big players in the energy business and the markets could shrug off their impact. Since then, the violence has spread to Bahrain and now Libya, he says.

Mr. PUMPHREY: We're beginning to see an accumulation of situations. Individually, none of them should be a problem, taken together, I think it causes more concern, especially if there's a risk that some of this spreads into the really big producers in the gulf states.

ZARROLI: The real fear right now is that the turmoil could extend to Saudi Arabia, the region's biggest oil supplier by far. In that case, the increases in oil prices that the world has seen so far will seem small by comparison.

Jim Zarroli, NPR News.

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