Will Libyan Power Shift Lower Fuel Prices?

Oct 21, 2011

Will Libyan Power Shift Lower Fuel Prices?

With Moammar Gadhafi no longer in power, oil companies are already looking to start ramping up production in Libya, whose supplies had been tightly controlled by the former dictator. Now a question remains: what effect will this new production capacity have on worldwide oil prices?

Some senior analysts within the industry recently spoke to Edmunds Inside Line about the possible effects. 

"Gadhafi's death won't be a big game-changer in the short term," said Patrick DeHaan, senior petroleum analyst at GasBuddy.com "I don't see prices going below $3 per gallon."

"I think consumers can expect lower short-term (gas) prices and then another vicious winter-spring rally," said Tom Kloza, chief oil analyst for the Oil Price Information Service. "Gadhafi's loss was factored into the marketplace when Tripoli fell this summer. There was a huge drop within a few days." He predicts that gas will average about $3.40 per gallon from now through Thanksgiving with prices rising to as much as $4.25 per gallon in the spring.

Before the civil war, Libya produced only 2 percent of the world's oil, but because the market is so touchy, any interruption in oil production can have a big impact on gas prices.

DeHaan said a bigger impact on gas prices in the U.S. will be China's economy.

"If China's economy hit a slowdown or if it started to see negative growth, it would be huge on oil prices," he said. "To see China's economy slow down would mean the pace of imports would slow down and that would be big. It would lower (gas) prices.”

Photo courtesy of BRQ Network and re-used under the Creative Commons license.