Oil prices fall on speculation global supplies will increase

Oil prices fell yesterday on speculation that Colonel Gaddafi’s rule in Libya is close to its end. Brent crude in London fell more than 1 per cent to $107.9 a barrel, although it had been down as much as 3 per cent in earlier trading.

The cost of oil fell on hopes that an end to the conflict in Libya would see the North African country’s oil flow restored and increase global supplies.

As the conflict escalated earlier this year, oil prices shot up as supplies from Libya, the world’s 12th largest oil exporter, were heavily restricted.

Libya pumped around 1.6 million barrels per day, nearly 2 per cent of global supply, before the conflict hit output when it broke out in February.

European refineries have struggled to make up for the production loss despite an increase from Saudi Arabia.

As the conflict winds down, production is likely to rise again, analysts predict, although it could take months to be fully restored to its pre-war levels.

Andrew Lipow, analyst and president of consultancy firm Lipow Oil Associates, said oil markets are likely to respond with “a sigh of relief that conflict has come to the end”.

Oil companies’ share prices gained yesterday from the prospect that more Libyan oil could come to market. Cairn Energy was up 8.3p at 289.7p and Royal Dutch Shell rose 45.5p to 1,936p.