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Analysts expect oil-price dropover time if Gadhafi is ousted

- Associated Press - Sunday, August 21, 2011

Oil prices around the world should start falling if Libyan rebels succeed in toppling Col. Moammar Gadhafi's regime, though the full effect won't be felt for months.

On Sunday night, rebel forces pushed into Tripoli without meeting much resistance, hours after they overran a major military base that defended the capital. Opposition fighters captured Col. Gadhafi's son and one-time heir apparent, Seif al-Islam Gadhafi.

Independent analyst Andrew Lipow said oil markets will likely respond Monday by sending prices lower in "a sign of relief that conflict has come to the end." But Mr. Lipow said it will take time for the market to erase the hefty price increase that resulted from the suspension of Libyan oil exports since the rebellion began in February.

When fighting broke out, oil was trading at around $84 a barrel. It quickly spiked above $93 and kept rising to a high above $110 at the end of April. Demand from emerging markets including China was also a factor in the rise. Oil has fallen recently along with stocks because of concerns about the global economy.

Libya used to export about 1.5 million barrels of oil per day, almost all of which have been cut off. Although Libyan oil amounted to less than 2 percent of world demand, its loss affected prices because of its high quality and suitability for European refineries.

Michael Lynch, president of Strategic Energy & Economic Research, said that once Col. Gadhafi is pushed out, Libya's new government could take the path of the Iraqis after the fall of Saddam Hussein and spend years fighting over every detail. Or it could follow Kuwait's example and quickly decide to bring in an outside company to get production restarted right away.

"They do have a good cadre of educated people, but they don't have a long record of competent self-government," Mr. Lynch said. "It would not be a bad bet to think there might be a chaotic period for a few months till they get organized."

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