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Oil prices fall as rebels enter Libyan capital Markets rally back on hopes of end to Libya conflict
(about 2 hours later)
Oil prices have fallen on hopes the conflict in Libya may be nearing an end after rebels entered Tripoli. Stock markets in Europe have rebounded, led by shares in energy firms, on hopes that fighting in Libya may soon end.
Brent crude futures fell 1.8% to $106.7 a barrel, while US sweet, light crude was steady at $82.9 in morning trading. London's FTSE 100 and the Cac 40 in Paris were both more than 2.5% up by early Monday afternoon.
Worries over the global recovery also weighed on the oil price during Asian trading hours, with Asian shares falling and gold hitting a new high. The rally follows a 5% to 10% slump on most markets on Thursday and Friday on recession fears in the US and Europe.
But stock markets rebounded after the open in Europe, led higher by a jump in shares connected to the oil sector. Oil prices initially fell on hopes that Libyan crude would soon come back on tap, before rising again on greater optimism about the economy.
The FTSE 100 in London and the Cac 40 in Paris rose more than 1% in early trading. Business opportunities
Italian oil firm ENI - the most active foreign company in Libya prior to the civil war - jumped 5%, while France's Total rose 3.5%, and BP and Shell climbed 2.3% each. During Asian trading hours, news from Libya combined with lingering anxiety over the economy to push the price of Brent crude futures down 3.2% to $105.15 a barrel.
Oil engineering firms also received a boost from strong financial results announced by Petrofac. The UK firm rose 3.6%, while French rival Technip jumped 3%. But as shares rose steadily following the opening of trading in Europe, oil prices also recovered.
By early afternoon in London, Brent was down just 0.9% at $107.66, while US sweet, light crude was up 1% at $83.61.
Leading the stocks rebound were the European energy firms best placed to exploit future Libyan business opportunities.
Italian oil firm ENI - the most active foreign company in Libya before the conflict began - jumped 6.4%, while France's Total rose 4.2%, and Shell climbed 3.7%.
Exploration firms Cairn Energy and Afren - both active in Africa - rose 4.5% and 5.2% respectively.
Oil engineering firms also received a boost from strong financial results announced by Petrofac. The UK firm rose 3.6%, while French rival Technip jumped 3.9%.
Increased supplies?Increased supplies?
Markets are hoping that an end to the conflict in Libya will see the country's oil exports restored, increasing global supplies.Markets are hoping that an end to the conflict in Libya will see the country's oil exports restored, increasing global supplies.
Libya is the world's 12th-largest oil exporter.Libya is the world's 12th-largest oil exporter.
Analysts said prices were likely to fall further as the political situation in the country unfolds. Analysts said oil prices were likely to fall further as the political situation in the country unfolds.
Before the start of the conflict, Libya produced 1.6 million barrels a day of crude oil, or about 2% of the world's output.Before the start of the conflict, Libya produced 1.6 million barrels a day of crude oil, or about 2% of the world's output.
But as the political unrest in the country intensified, the majority of that production was hit, taking a toll on global oil supply.But as the political unrest in the country intensified, the majority of that production was hit, taking a toll on global oil supply.
Analysts say that if the conflict ends, production numbers are likely to rise again.
"Once they get back to recovery mode, a million barrels per day are expected to enter the global supply," said Jonathan Barratt of Commodity Broking told the BBC."Once they get back to recovery mode, a million barrels per day are expected to enter the global supply," said Jonathan Barratt of Commodity Broking told the BBC.
"This will add weight to the decline in oil prices that we have seen recently." he added."This will add weight to the decline in oil prices that we have seen recently." he added.
Macroeconomic factors
However, some analysts said that even though the Libyan conflict seemed to be heading towards an end, there was still uncertainty about how fast the country's oil production could be restored to the pre-conflict levels.However, some analysts said that even though the Libyan conflict seemed to be heading towards an end, there was still uncertainty about how fast the country's oil production could be restored to the pre-conflict levels.
"It will take a long time for them to repair the production facilities and get back on track," Avtar Sandhu of Phillip Futures told the BBC."It will take a long time for them to repair the production facilities and get back on track," Avtar Sandhu of Phillip Futures told the BBC.
"What we are seeing today is more of a psychological selling," he added."What we are seeing today is more of a psychological selling," he added.
Macroeconomic factors Oil prices have also been hit by concerns in the past month that demand may be hurt by a slowdown in the global economy.
Oil prices have also been hit by concerns that demand may be hurt by a slowdown in the global economy.
There have been growing concerns that the US may be slipping back into a recession and that Europe's debt crisis will hurt growth in the region.
"We can count on slower economic growth in US and Europe, and that is going to impact demand for oil," Victor Shum of Purvin and Gertz told the BBC."We can count on slower economic growth in US and Europe, and that is going to impact demand for oil," Victor Shum of Purvin and Gertz told the BBC.
Analysts said that, with two of the world's biggest economic zones struggling to boost growth, oil prices are likely to slide.Analysts said that, with two of the world's biggest economic zones struggling to boost growth, oil prices are likely to slide.
"Until the US and Europe can come up with a long-term solution for sustainable growth, markets are likely to be subdued," Phillip Futures' Mr Sandhu said. "In the long run, macroeconomic issues will play a huge role in determining which way the oil prices are headed," Phillip Futures' Mr Sandhu said.
"In the long run, macroeconomic issues will play a huge role in determining which way the oil prices are headed," he added.
Japan threatJapan threat
Markets had fallen heavily on Thursday and Friday - with banks hit hardest - on fears of a renewed recession in the US and Europe. Markets saw heavy falls on Thursday and Friday last week on recession fears, and the negative sentiment carried over into Asian trading hours on Monday. In Japan, the Nikkei ended the day 1% lower, although Hong Kong's Hang Seng index ended up 0.45% after a late rally.
That negative sentiment continued to weigh on Asian markets on Monday, with Tokyo's Nikkei ending the day 1% lower, while Hong Kong's Hang Seng finished 0.5% lower after a late rally. Haven investments also did well during Asian trading, but then fell back as European shares rallied.
Meanwhile haven investments continued to rise. The price of gold had risen 2.3% prior to the Europe open, to hit yet another record high, of $1,894.5 per troy ounce - before sliding sharply.
The price of gold rose 2.3% to hit a record high yet again, of $1,894.5 per troy ounce, before falling back after the open in Europe. The Japanese yen held steady half-a-yen above the record level of 76.1 yen to the dollar it set on Friday.
The Japanese yen was trading close to its record level of 76.1 yen to the dollar set on Friday. Japan's finance minister Yoshihiko Noda reiterated the government's readiness to intervene if the currency strengthened further.
The country's finance minister Yoshihiko Noda reiterated the government's readiness to intervene if the currency strengthened further.
"We will watch markets even more closely than before to see whether there is any speculative activity," he said."We will watch markets even more closely than before to see whether there is any speculative activity," he said.
"We won't rule out any measures and will take decisive action when necessary.""We won't rule out any measures and will take decisive action when necessary."
The Swiss franc - another popular haven currency - held steady at about 1.13 euros. The Swiss authorities intervened last week to curtail the strength of their currency. Meanwhile, the Swiss franc - another popular haven currency - weakened against the euro. The Swiss authorities intervened last week to curtail the strength of their currency.
The US Federal Reserve chairman, Ben Bernanke, is expected to hint at further monetary stimulus measures in a major speech at Jackson Hole in Wyoming on Friday, which is likely to weaken the dollar. Currency movements are also being driven by speculation that the US Federal Reserve chairman, Ben Bernanke, will hint at further monetary stimulus measures in a major speech at Jackson Hole in Wyoming on Friday - something that is likely to weaken the dollar.