News / Middle East

Oil Prices Rise as Concerns Grow Over Japan Disaster, Mideast Unrest

Burning oil tanks in Libya
Burning oil tanks in Libya

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Crude oil prices are climbing as energy experts worry about the impact of the fighting between rebel and government forces, and the newly-imposed international no-fly zone, on Libya's oil production.  Adding to the price volatility is continuing unrest in Bahrain, Syria and Yemen - along with speculation of increasing global demand.  

In the Libyan oil port of Zwitina, northeast of Benghazi, burning fuel tanks underscore the damage to Libya's oil production - down from about 1.6 million barrels per day to less than 400,000.

Shukri Ghanam, chairman of Libya's National Oil Corporation, says the country is desperate to get oil flowing again.

"We will be even looking at giving direct contracts and direct blocks to companies from any country that is kind of willing and ready to come and work in the country," said Ghanam.

The disruption has resulted in sharply higher oil prices and renewed concerns that the unrest could spread to other oil producing countries in the Middle East.

The earthquake and tsunami damage in Japan has only fueled more concern.

In the country's northeast, the Fukushima nuclear crisis appears to be stabilizing,  but analysts say Japan is likely to increase oil and gas imports to make up for the loss of power from the damaged nuclear facilities.

Oliver Roth is a market strategist at Close Seydler Bank:

"The intervention in Libya right now doesn't play a big role in the focus of the financial markets," said Roth. "We are much more focused on the oil price and on Fukushima."

As a result oil prices remain extremely volatile.  

Jan Randolph at IHS Global Insight expects prices to trend higher.

"Demand is rising relative to supply and stretching supply," said Randolph. "That's why oil prices have moved up over the last few years, but the spiking is on top of this.  And it adds what we call a counter-risk premium which is anything between 10 and 20 dollars on the oil price and that is very much related to the day-to-day events."

For many in Japan, day to day has been anything but normal.

"There are still concerns over the shortage of gasoline supplies," said a Japanese. "We are rationed 20 liters a person per day and sometimes have to wait four of five hours to get fuel.  I am worried how that will be solved in the future."

Experts say oil prices are likely to hit $120 a barrel in coming months.
Economists say that will lead to higher prices for food and gasoline - adding downward pressure to an already weak global recovery.

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