Oil price down as rebels capture most of Tripoli

[August 22, 2011]  MILAN (AP) -- Brent crude fell to near $105 a barrel on Monday as Libyan rebels captured most of the country's capital, boosting hopes the OPEC nation's oil exports could resume soon.

Rebels overran most of Tripoli after a quick advance to the capital as defense of Moammar Gadhafi's regime collapsed. Gadhafi's whereabouts were unknown while two of his sons were captured by rebels.

Prospects of an end to the Libyan civil war boosted hopes that production from the country would resume earlier than expected.

Italian Foreign Minister Franco Frattini said Monday that Eni were already working to restart oil and natural gas production from the country. Eni is the largest foreign producer in Libya, and most of the plants were built by the Eni subsidiary Saipem.

"I won't be revealing any secrets if I say that Eni technicians have already been called to Bengazi to reactivate the plants," Frattini told RAI state television. He said there were technical consultations already last week.

Eni declined to elaborate on Frattini's comments.

In London, Brent crude for October delivery was down $1.97 per barrel to $106.62 on the ICE Futures exchange by late morning European time.

The benchmark oil contract on the New York Mercantile Exchange, however, was up slightly -- 50 cents to $82.76 a barrel. The difference between the two contracts is due to the fact that Europe mainly uses Brent and Libyan oil, whereas the Nymex contract is based on West Texas Intermediate, a different quality of crude.

"If the Ghadafi regime falls, Libyan oil production should gradually resume and European markets would directly benefit from that," said Victor Shum, an analyst with energy consultant Purvin & Gertz in Singapore. "Having more supply while the global economy is under threat should put downward pressure on oil prices."

Gas and oil production has been mostly halted in Libya since February. Although Libyan oil amounted to less than 2 percent of world demand, its loss affected prices because of its high quality and suitability for European refineries.

Investors will be closely watching how smooth the transition to the new government will be and how fast oil production can come back on line.

Carsten Fritsch, an analyst with Commerzbank, said that Libya should be able to resume output soon once Ghadafi is toppled, noting the rebels expect this to happen within three weeks.

"In the coming days, the price could drop further towards $100 a barrel," he said, referring to Brent crude.

Fears of an economic slowdown in the U.S. and Europe have weighed heavily on energy prices in recent weeks and are expected to remain key to market sentiment in the longer term, although the Libyan developments dominated trading on Monday.

Eni evacuated all of its personnel in Libya in March, but has said no damage has been reported to the plants and pipelines and that it would be technically able to resume output at levels close to pre-crisis flows once the situation had returned to normal.

The head of Eni's exploration and production unit, Claudio Descalzi, told a conference call last month that it would take two to three months to restart natural gas production and a year to reactivate oil production.

Eni produced 273,000 barrels of oil and natural gas in 2010 in Libya, about 15 percent of the company's worldwide production. Shares in the company were up 5 percent to euro13.10.

Repsol, another big producer in Libya, was not reachable for comment.

In other Nymex trading for October contracts, heating oil fell 3 cents to $2.87 per gallon and gasoline futures dropped 5 cents to $2.79 per gallon. Natural gas for September delivery sank 5 cents to $3.89 per 1,000 cubic feet.

[Associated Press; By COLLEEN BARRY]

Alex Kennedy in Singapore and Alan Clendenning in Madrid contributed to this report.

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