Singapore/London: News that the endgame is beginning in Libya has sent oil falling, as this raised expectations that exports from the OPEC member could resume soon.
The six-month civil war is drawing to an end with hundreds of rebel fighters pushing into the centre of the Libyan capital, Tripoli, late on Sunday.
Analysts believe Libya could be pumping up to 1m barrels a day again within months. Libya pumped around 1.6 million barrels per day (bpd), nearly two percent of global supply, before the war cut output. Most of Libya's high-quality crude flowed to European refiners, and tightening supply after Libyan exports stopped drove Brent to a two-year high of $127.02 in April.
Brent crude dropped $3.47 to $105.15 per barrel at 0731 GMT. US crude fell 24 cents to $82.02 a barrel after dropping to as low as $81.13 earlier. The front-month September US crude contract expires on Monday.
It may take years for output from Libya, the world's 17th-largest oil producer, to fully recover, but rebels hope to resume oil output - Libya's main revenue earner. Analysts say output of as much as a million bpd could be feasible within months.
Rebels swept into the heart of Tripoli and crowds took to the streets to celebrate what they saw as the end of Muammar Gaddafi's four decades of power, but a government fightback was reported as dawn broke on Monday.
"You will see a relaxation in the supply of crude to the region as a result of what is happening in Libya," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney on how supplies coming back are hitting prices.
Oil tanker on way to Benghazi
Tight supplies of Libya’s light sweet crude in Europe helped fuel a widening of the spread between Brent and US WTI crude. The spread is already narrowing and could contract further with the prospect of resumption in Libyan supplies, Barratt said.
"The important thing to note is that Brent and WTI (spreads) should be trading at $1-$2. The spreads between WTI and Brent should continue to unwind as Libya's light sweet crude is added back to the market."
As oil prices slumped globally, a tanker carrying fuel oil was on its way to Libya’s Benghazi, its operator said. The Baltic Front tanker is carrying 20,000 metric tons of fuel oil to the rebel-held Libyan port, according to the operator of the product-tanker pool in which the vessel operates.
The 183-meter vessel is scheduled to arrive later Monday, ship- tracking data compiled by Bloomberg show. The details on the cargo were given by Jens Christophersen, vice president of chartering of the Norient Product Pool in Denmark.