As Libya's uprising keeps oil prices high, Europe's bill for imported oil could be even bigger this year than it was in 2008 when crude jumped to $147 a barrel, potentially endangering the continent's fragile economic recovery, the International Energy Agency's chief economist said in an interview.
The IEA's Fatih Birol said that if the price of European oil averages $100 a barrel this year, the European Union will have to spend $375 billion on oil imports—slightly more than the $369 billion it forked out in 2008 and much higher than the $221 billion paid in 2009 and the $299 billion spent last year. As a percentage of gross domestic product, the $375 billion would be more than double what the EU paid for imports on average between 1971 and 2008. Record-high crude prices in 2008 were widely considered a primary trigger for the global recession.
"This is very risky, especially because Europe is the weakest link in the chain of the global economic recovery," Mr. Birol said.
He was speaking as oil markets continued to gyrate, driven by fears that the chaos in Libya could spread to the oil-rich Persian Gulf. Protests in Oman have raised concerns that it could be the next oil producer after Libya to experience upheaval.
Oil has been trading at its highest level in two-and-a-half years. Brent, the main European benchmark, which broke through $100 a barrel in January, was trading at $112 a barrel Monday morning, while U.S. crude was trading at around $98.
The world's 13th largest oil exporter, Libya produces some 1.6 million barrels a day. That figure that has halved since the uprising began, as international oil companies suspended their operations and evacuated hundreds of employees. Staff shortages and production outages have also forced most of Libya's ports to close, severely hampering exports. Natural gas deliveries were slashed when Italian energy giant ENI SpA shutdown a gas pipeline under the Mediterranean from Libya to Sicily last week. It could take months for Libyan supply to return to precrisis levels, analysts say.
In theory, the world can easily deal with any supply shortage. The Organization of Petroleum Exporting Countries has spare production capacity, and the industrialized countries have 1.6 billion barrels in strategic petroleum reserves.
Meanwhile, Saudi Arabia, the biggest producer in OPEC, has increased output to cover the shortfall. Mr. Birol said the kingdom was doing an "excellent job," showing once again that "in an emergency they're prepared to play the role of central banker and make oil available."
But one concern in the market is that replacing Libya's high-quality, light sweet blends will be difficult to do at short notice. The oil that Saudi Arabia has available is of poorer quality with a higher sulfur content, and harder to turn into transportation fuels.
Analysts from Bank of America Merrill Lynch suggested Monday that since most of the oil in the IEA's strategic reserves was medium-sour crude, "gasoline-rich light-sweet barrels will remain in short supply." It also said OPEC's spare capacity was down substantially, meaning the oil market's ability to deal with further outbreaks of unrest in the Middle East "remains limited." The bank predicted oil supplies from Libya could be off "for months."
"The Libyan supply disruption could be the eighth largest supply shock since 1950, on our estimates," Bank of America went on to say. "More worryingly, with other countries like Algeria, Syria, Yemen or Saudi Arabia scoring high on social discontent, the risk of continued tensions in the region remains high."
Mr. Birol said he feared that if oil remained at or above $100 a barrel this year, it could stoke inflationary pressures in Asia, potentially putting a brake on economic growth in key Asian countries like China.
He also said instability in the Middle East and North Africa could deter oil producers in the region from investing in new oil and gas projects, paving the way for additional supply challenges in the future. "What I'm afraid of is that the current situation could lead to the postponement of investments, delays, which could drive up costs and in turn lead to a fall in production" further down the road, he said.
The IEA's Fatih Birol said that if the price of European oil averages $100 a barrel this year, the European Union will have to spend $375 billion on oil imports—slightly more than the $369 billion it forked out in 2008 and much higher than the $221 billion paid in 2009 and the $299 billion spent last year. As a percentage of gross domestic product, the $375 billion would be more than double what the EU paid for imports on average between 1971 and 2008. Record-high crude prices in 2008 were widely considered a primary trigger for the global recession.
"This is very risky, especially because Europe is the weakest link in the chain of the global economic recovery," Mr. Birol said.
He was speaking as oil markets continued to gyrate, driven by fears that the chaos in Libya could spread to the oil-rich Persian Gulf. Protests in Oman have raised concerns that it could be the next oil producer after Libya to experience upheaval.
Oil has been trading at its highest level in two-and-a-half years. Brent, the main European benchmark, which broke through $100 a barrel in January, was trading at $112 a barrel Monday morning, while U.S. crude was trading at around $98.
The world's 13th largest oil exporter, Libya produces some 1.6 million barrels a day. That figure that has halved since the uprising began, as international oil companies suspended their operations and evacuated hundreds of employees. Staff shortages and production outages have also forced most of Libya's ports to close, severely hampering exports. Natural gas deliveries were slashed when Italian energy giant ENI SpA shutdown a gas pipeline under the Mediterranean from Libya to Sicily last week. It could take months for Libyan supply to return to precrisis levels, analysts say.
In theory, the world can easily deal with any supply shortage. The Organization of Petroleum Exporting Countries has spare production capacity, and the industrialized countries have 1.6 billion barrels in strategic petroleum reserves.
Meanwhile, Saudi Arabia, the biggest producer in OPEC, has increased output to cover the shortfall. Mr. Birol said the kingdom was doing an "excellent job," showing once again that "in an emergency they're prepared to play the role of central banker and make oil available."
But one concern in the market is that replacing Libya's high-quality, light sweet blends will be difficult to do at short notice. The oil that Saudi Arabia has available is of poorer quality with a higher sulfur content, and harder to turn into transportation fuels.
Analysts from Bank of America Merrill Lynch suggested Monday that since most of the oil in the IEA's strategic reserves was medium-sour crude, "gasoline-rich light-sweet barrels will remain in short supply." It also said OPEC's spare capacity was down substantially, meaning the oil market's ability to deal with further outbreaks of unrest in the Middle East "remains limited." The bank predicted oil supplies from Libya could be off "for months."
"The Libyan supply disruption could be the eighth largest supply shock since 1950, on our estimates," Bank of America went on to say. "More worryingly, with other countries like Algeria, Syria, Yemen or Saudi Arabia scoring high on social discontent, the risk of continued tensions in the region remains high."
Mr. Birol said he feared that if oil remained at or above $100 a barrel this year, it could stoke inflationary pressures in Asia, potentially putting a brake on economic growth in key Asian countries like China.
He also said instability in the Middle East and North Africa could deter oil producers in the region from investing in new oil and gas projects, paving the way for additional supply challenges in the future. "What I'm afraid of is that the current situation could lead to the postponement of investments, delays, which could drive up costs and in turn lead to a fall in production" further down the road, he said.
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