World markets trembled and crude prices ramped up yesterday on reports of oil supply disruptions in Libya as Muammar Gadhafi’s grip on the oil exporting nation seemed to tremble.
Meanwhile in Israel, residents are likely to take a hit at the pump next month as oil prices rises around the world.
The dictator vowed in a defiant television address to die in Libya as a martyr, scorning reports that he’d decamped to Venezuela, sending crude prices jumping about 5% in world markets. In New York, the price of crude jumped to $94 per barrel after Libya admitted to “force majeure” disruptions.
Over here, the price of 95-octane will rise 17 agorot per liter starting next month, if yesterday’s oil price doesn’t change.
Currently 95-octane costs NIS 7.02 per liter (self-service), after Jerusalem rescinded an excise tax increase last week following a public outcry. In other words, just a week ago the price of 95-octane decreased by 24 agorot per liter.
Next month however, based on last night’s oil prices, drivers can expect a 2.5% increase to gasoline and diesel prices, say industry insiders.
Gasoline prices in Israel are set during the last week of the preceding month. The mathematical formula is based on the La Vera CIF prices for fuels in the Mediterranean basin during the last five business days before the last two days of each month. La Vera is a French port where a huge amount of oil trading is carried out; Israel isn’t the only one using its prices as a yardstick.
CIF means “cost, insurance and freight.” A CIF price is the price of a good, in this case oil, delivered at the frontier of the importing country, including any insurance and freight charges.
In other words, the price of oil in the Mediterranean from Sunday, February 22 to Thursday, February 26 will determine Israel’s March gasoline prices. (In months with 30 days, the crucial dates are the 23rd to the 28th.) Unless oil suddenly pulls back, Israelis will be taking a hit at the gas station.
Airline stocks, El Al fall on fuel cost worries
Until last night, Wall Street investors had seemed unconcerned by the events unfolding in the Middle East, though there had been some movement toward gold, a safe-haven investment in times of trouble. But during trading, gold actually pulled back. The yellow metal fell toward $1,400 an ounce, breaking a six-session upswing. But investors did hare for safe-haven U.S. treasury bills, traders reported: gold is considered more speculative than T-bills.
Yesterday however, as the revolt in Libya spread and the regime seemed to near breakdown, American shares retreated − though plenty of investors saw the dip as an opportunity to buy, possibly spurred by the three-year spike in U.S. consumer confidence. The Nasdaq technology index was down nearly 2% in afternoon trading and ended almost 3% below eh flatline. The broader Dow Jones industrials index was off nearly 1% in afternoon trading and finished the New York session down 1.4%.
Higher oil prices lifted some energy shares but hit the wider market on concerns they would translate into higher costs: U.S.-listed airline stocks tanked on concerns about their future costs. Southwest Airlines for instance was down 4.5% in afternoon trading. The AMEX Airlines Index was losing an even steeper 5.6%.
Over on the Tel Aviv Stock Exchange, all the indexes lost ground. Shares of El Al Israel Airlines tumbled 5.4%, while the benchmark TA-25 index lost 1.3%.
Asian investors were just as unnerved by the scenes emanating from Tripoli. Japanese shares retreated by 1.8%, Hong Kong stocks lost more than 2% and Chinese equities tumbled 2.6%. If anything the markets in the Arab nations stood firmer, though the screens were red: Saudi shares fell 0.8% and Moroccan stocks dipped by 0.7%. Dubai stocks fell 2.4%, on the other hand. Over in Abu Dhabi, stocks fell 1.6%.
Why would the escalating fight in Libya topple share prices the world wide?
The lesser reason is that the North African nation has the biggest oil reserves in the continent, around 46.42 billion barrels.
The bigger reason is concern that the contagion will spread: The conflict in Libya has been far more violent than those in the other Arab nations so far. But that could change, and other Arab nations are more central to the global economy. Bahrain for instance may be tiny but it’s next door to Saudi Arabia, the biggest supplier in OPEC.
The concern boils down to this: That destabilization of the Middle East will send oil prices soaring. However, JPMorgan Chase points out that political upheaval in a given place typically doesn’t halt oil production.
Also, yesterday Saudi Arabian oil officials reassured that Saudi Arabia and other OPEC members were prepared to meet any shortage from disruption caused by the spreading unrest.
Libya produces around 1.6 million barrels of oil per day, and OPEC has spare capacity of up to 6 million barrels, so even if all exports were stopped this would not create a supply shortage, commented Carsten Fritsch, an analyst at Germany’s Commerzbank.
Report: EMG head quit
Meanwhile, over in Egypt, there were reports yesterday that Mohamed Ibrahim Tawila has quit as president of Egyptian energy company Eastern Mediterranean Gas.
Online news outlet Al Masry al Youm said it failed to get a comment from the company. A spokesman for Merhav, the Israeli partner in EMG, firmly denied the report of Tawila’s resignation.
Israel imports Egyptian natural gas through EMG, which supplies about 40% of the Israel Electric Corporation’s gas. The supply from Egypt to Israel shut down after the pipeline connecting the Egyptian gas fields to Syria was sabotaged two weeks ago.
With reporting by Reuters, Ruth Schuster and Dafna Maor.
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