Leaping Oil Prices May Call for Emergency Measures

Bahrain oil wellOil consuming nations have emergency reserves they can use to stabilize markets in case the violence in Libya and the wider Middle East escalates and crimps production, officials said Monday.

But international executives and analysts meeting in London were nervously watching developments in the oil-rich region, worried about the sharp shock political unrest is giving to crude oil prices.

Oil prices jumped on Monday because of the ongoing turmoil in Libya, where Moammar Gadhafi's son, Seif al-Islam Gadhafi, warned protesters on Sunday that they risked igniting a civil war in which Libya's oil wealth "will be burned." By early afternoon in Europe, benchmark crude for March delivery was up $3.10 to $89.30.

Libya alone exports at least 1 million barrels of crude a day. Even more worrying for markets is potential contagion, or the spreading of the political violence to other countries in the Organization of Petroleum Exporting Countries - key exporters Saudi Arabia and Kuwait are considered potential flashpoints.

"A Last Resort"

David Fyfe, head of the oil industry and markets division at the International Energy Agency, stressed that the IEA member countries hold reserves of 1.6 billion barrels of oil - equivalent to some 4 million barrels per day for the next 12 months - that could be brought onto the market if necessary. The IEA's 28 members are mainly oil consuming industrial nations such as the U.S., Japan, Britain and Germany.

The IEA has used government stocks to steady the oil market only twice before, during the Gulf War in 1991 and after Hurricane Katrina hit the Gulf of Mexico in 2005.

"It's very much a last resort, but it's worth pointing out that it exists and has been used before when supplies have been disrupted," he said. "It's a sort of insurance policy for the market. Our view is that it isn't something that should be used for price management," he said.

Fyfe said the situation in the Middle East and North Africa was "of real concern," noting that the region accounts for 60% of global oil resources and 40% of global gas resources.

"Compared to Tunisia [a minor crude exporter] or Egypt [not an exporter but a transit country], instability in Libya is a major concern to the oil industry," said analysts at JBC Energy in Vienna.

"Of Intense Concern" to BP

David Buik, markets analyst at BGC Partners in London, noted that Seif al-Islam Gadhafi's comments that there would be "rivers of blood" in Libya had also prompted a surge in gold prices to just above $1,400 an ounce. "There was a feeling by unsettled investors of a need to take yet another flight to quality," he said.

BP (BP) has suspended operations and is evacuating around 40 expatriate staff and their families amid the escalating violence - halting operations in the North African country just four years after the British company returned from a 30-year hiatus.

"Events in the Middle East are of intense concern as they continue to evolve," Ian Smale, group head of strategy and policy at BP, said at International Petroleum Week, a key event on the oil industry's calendar.

"With specific regard to Libya, our first concern is our people and the security and integrity of our operations," Smale said at the Energy Institute-sponsored conference in central London.

Smale said Libya is not a major operating base for BP, but did not respond to questions about BP's partnerships with state-owned entities in the Middle East and North Africa.

BP signed a deal worth at least $900 million in 2007 to explore in Libya. It said it would monitor the situation on a daily basis and could not confirm when work would start again, but it stressed that offshore operations in the region were still open and the closure would not affect oil production.

Reinforcing Security Measures

Italy's Eni gas and oil company said in a statement that it was evacuating nonessential personnel and family members of expatriate workers in Libya "as already scheduled following the early closure of schools in the country."

"At the moment, no problems at plants and operational facilities have been reported. The company's production continues as normal, with no effects on operations," Eni said, adding that it was reinforcing security measures for remaining employees and plants.

Royal Dutch Shell (RDS.A), whose operations in Libya are limited to exploration, said it has temporarily relocated dependents of expat staff out of the country.

In the U.S., ConocoPhillips (COP) spokesman John McLemore said the company is monitoring the situation but had no comment on the security of its workers there. ConocoPhillips has a joint interest in an oil drilling operation in Libya along with Marathon Oil and Libya's state-run oil company,

More Spare Capacity

Exxon Mobil (XOM)., which has licenses for offshore drilling near Libya but no active drilling now, said it did not discuss security matters. Occidental Petroleum (OXY), the first U.S. company to resume operations in Libya when the U.S. government lifted sanctions against the North African country in 2004, did not immediately return a call seeking comment. Last year, Occidental produced 13,000 barrels of oil, gas and liquids per day in Libya.

Current unrest aside, Fyfe said that oil growth demand should slow this year to around 1.5 million barrels per day, down from 2.8 million barrels last year. He said there were a number of differences between now and the shortages and price rises that characterized 2008, including more spare capacity, more OPEC production and slowing oil growth after the post-recessionary bubble of that year.

Copyright 2011 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

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guess its time to drive off without paying again, not afraid to do it gonna have no choice with the new sticker shock those investors are going to make reality at the pump

February 22 2011 at 12:28 AM Report abuse rate up rate down Reply

The banks & investment bankers that obama bailed out, control oil price with your money - Right now they are loving the news in oil rich areas - This allows speculation - Right now there are no production interruptions, & there is so much oil around they can't get it into our harbors fast enough - Oil is high because government still allows speculation which means the government is playing banker with the bankers, that is why the banks got bailed out in the first place - Empty your savings accounts & stuff it in a mattress - How much is it making for You anyway - If enough Americans do this the price of everything will come down.

February 21 2011 at 7:54 PM Report abuse +3 rate up rate down Reply
1 reply to estein4124's comment
Chuck Miller

Big Oil lives in Texas not Chicago. Someday the Fox Sheep will see why Fox
Rupert Murdock wears knee high boots

February 21 2011 at 9:13 PM Report abuse rate up rate down Reply

Great AOL and AP---write scare stories and the prices will flow upwards.

February 21 2011 at 7:02 PM Report abuse +2 rate up rate down Reply

what a joke we have 22 years of oil here in tank to run the US but at will they can rip off people by raise the price of greed of money and oil we could stop every drop of oil coming here for 5 years and gas could be only 1.50 gal but the greed of money will not let it happen

February 21 2011 at 6:26 PM Report abuse +6 rate up rate down Reply