The continued concern over political unrest in the Middle East and North Africa led oil prices to rise further in trading yesterday. The price of Brent Crude rose to $120 a barrel at one stage yesterday (Thursday) before falling back to close around $114 a barrel. The main cause of the price rise is the potential for supplies to be disrupted and so buyers are looking to secure stocks in case of such an event. One of the other problems in the market is that the oil produced by Libya is of a different quality than in other countries - it is classed as 'lighter' which means that it is easier to refine into different products that people use everyday.
The reality behind the market seems to be more benign - Libya supplies around 2 per cent of the total world oil output which equates to around 1.8 million barrels a day although the average for January was 1.58 million barrels per day. Saudi Arabia has said that it stands ready to increase supplies to maintain stability in the market if necessary and has the capacity to more than double the amount of oil that Libya currently produces.
The price of oil has now risen by around $15 a barrel over the last few weeks and the result will be a rise in the price of fuel at the pumps for motorists. Representatives of petrol retailers in the UK have warned that prices will start to rise today and that by next week it is likely that around 3p per litre will have been added to prices. This is not going to help the inflation rate in any way and will put further pressure on businesses which use petrol and diesel in large quantities as part of their production process such as hauliers.
The UK government has said that it is aware of the problems that the higher price of fuel is placing on businesses and ordinary people alike. It has said that it is looking at some sort of fuel price stabiliser which would try to reduce the volatility of prices at the pumps. However, it does seem that there is considerable debate with the Treasury about exactly how such a scheme would work and also what the cost would be.
In the meantime, therefore, the chances are that motorists are going to have to cope with further increases in fuel prices. Attention will turn to the response of the US Government to the crisis and to the major oil producers like the Saudis in the days ahead as a means of finding ways to stabilise the market and calm traders' nerves.