Oil could hit $220 a barrel on Libya and Algeria fears
Almaty. February 24. Kazakhstan Today - Nomura's commodity team said oil prices can increase up to $220 if there is unrest in Algeria as well, Kazakhstan Today reports.
Libya's descent into civil war has led to drastic cuts in oil shipments and prompted warnings that an escalation of the crisis could see Brent crude prices double to $220 a barrel, The Telegraph reported.
Nomura's commodity team said oil prices risk vaulting to uncharted highs over coming weeks if chaos hits Algeria as well, reducing global spare capacity to the wafer-thin margins seen just before the first Gulf War.
On Wednesday, Brent crude rose more than 5pc to almost $112 a barrel, threatening levels that could derail the global economy. It closed at $111.25.
"We could see $220 a barrel should both Libya and Algeria halt oil production. We could be underestimating this as speculative activiites were largely not present in 1990-1991," said Michael Lo, the bank's oil strategist.
The warning came as Italy's ENI announced a suspension of supplies through Libya's gas pipeline, and a string of foreign companies evacuated staff and shut production. Libya holds Africa's biggest oil reserves and produces 1.6m barrels a day (b/d), mostly for export to Europe.
The German driller Winthershall halted its 100,000 b/d production in Libya, while ENI stopped at a string of sites, vastly reducing its flow of 550,000 b/d. A number of producers have declared "force majeure".
Barclays Capital said 1m b/d of Libyan output is "shut in", with the other 0.6m at risk. While Saudi Arabia can step in by raising output, this takes time and its oil is not a substitute for Libya's "sweet crude".
The escalating crisis set off further falls on global bourses. Wall Street was down 1pc in early trading and the FTSE 100 fell 1.2pc. The Dow has shed more than 300 points over the past three days to 12,075.
Nomura said a shut-down in both Libya and Algeria would cut global supply by 2.9m b/d and reduce OPEC spare capacity to 2.1m b/d, comparable with levels at the onset of the Gulf War and worse than during the 2008 spike, when prices hit $147.
Both price shocks preceeded - or triggered - a recession in Europe and the US. Fatih Birol, chief economist for the International Energy Agency, said the latest price rise had already become a "serious risk" for the fragile economies of the OECD bloc.
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Annual inflation in February and March continued to decrease, albeit at a slower pace. Inflation expectations have slightly decreased but remain at a relatively high level. The external inflation background continues to be neutral with the ongoing trend of declining grain prices in global markets. Within the domestic economy, inflationary pressure persists due to robust internal demand and unanchored inflation expectations," reads the bank’s official statement.
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