As a coda to Robert Halfon’s piece on the relationship between tax and petrol prices, it’s worth noting that a substantial proportion
of European sweet crude (the type of crude oil commonly refined into petrol) originated in Libya. Soon after civil war broke out in Libya, Saudi Arabia increased its
oil production and the IEA released some of its reserves to cover lost
Libyan production in order stop a spike in the wholesale oil price, which benefits rogue members of OPEC like Iran and Venezuela. But not all of that output was sweet crude, so the
collapse of Libyan exports has had a deleterious effect on petrol prices, which have reached 150p/litre in some British garages.
Once the Libyan revolution subsides, assuming that it does, the new administration will have to restore production. The FT reports that oil accounted for more than a quarter of Libyan GDP in the last year of Gaddafi’s regime. Economic recovery in the country will therefore depend on the commodity to a very great extent, but there are serious doubts as to how quickly that can be achieved, with Barclays Capital warning that it make take 18 months, which is a long time in a potentially unstable and impoverished country.
Analysts are convinced that restoring capacity in Libya will relax global oil prices, but few expect major moves on the market. Libya accounts for only 2 per cent of global output and there are those, like former Shell chief John Hofmeister, who think that production must increase across the world to tackle the fundamentals that are now contributing to what appears to be inexorably rising prices. Most experts also seem to agree that demand will relatively remain high, even as the global economy cools, sustaining high prices. But there is a small band of academics and administrators who think that oil is the victim of market speculation, which has driven up prices. The FT’s energy editor, Javier Blas, notes in his latest newsletter:
‘The European Central Bank has just published a study in which one of its economists joins the trend of blaming both fundamentals and speculators, saying that “some speculative and trend chasing behaviour may have been adding to oil prices” since 2004. The research paper ‘What is driving oil futures prices? Fundamentals versus speculation’ by Isabel Vansteenkiste comes just as policymakers in the US, Europe and elsewhere are debating a clampdown in the activity of hedge funds, pension funds and other large financial investors in energy and commodities markets. The paper follows on the steeps of a recent influential study by Kenneth J. Singleton, of Stanford University, which also blamed financial speculators for some of the oil price gains of recent years.’
There are already moves to ensure that oil companies (and energy providers) pass on falls in the wholesale price of fuel to the consumer, but it remains to be seen if regulators will act on these latest suspicions.
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