The Dead Spread
Trying to explain the impact of the death of Moammar Gaddafi on oil might best be described as what I guess can now be called the "Dead Spread." Oh sure, you used to be able to call it the Brent crude oil/West Texas intermediate spread but the way the spread has come in since the death of the murderous dictator, I guess the Dead Spread might be entirely appropriate.
The Brent/WTI spread almost became a household word in the conflict between Gaddafi loyalists and the Libyan rebels. Libyan crude is of a very high quality oil that found its niche in Europe subbing for the production challenged North Sea Brent crude. The loss of that crude created a void because European refiners accustomed to a regular flow of light crude failed to have the type of units needed to refine those heavier grades. The loss of that crude caused the Brent/WTI spread to go to a record high. Now coincidentally or not, the spread has come in dramatically since Mr. Gaddafi's demise. In fact the spread has come in from an all-time high of approximately $28.07 to a mere $18.97 as of this writing. With Gaddafi out of the way, the hope is that Libyan oil will once again fill that void. Well early on that is even going beyond hope. Yesterday ENI told Dow Jones that the big elephant in the room - or Libya's giant Elephant oil and gas field in Libya - could restart as early as next month and that there was "no big damage." That field accounts for almost 25% of Libya's natural gas output. A resumption of that much oil that soon obviously could ease concerns that it will take "years" to get Libyan oil production back up to normal.
That’s not to say that there are not some tensions as Dow Jones reports of a strike at Waha Oil Co., Libya's largest oil partnership with foreign companies, is entering its eighth week after a failure to reach an agreement over the dismissal of Gaddafi-era managers, staff at the company said. Dow Jones says, "Unrest at Waha, on which U.S. partners Marathon Oil Corp. (MRO), Hess Corp (HES) and ConocoPhillips (COP) have previously declined to comment, is part of broader strife at some oil operations. It underscores the challenges still facing the country's oil industry despite the death of former ruler Moammar Gaddafi last week."
Yet at the same time the WTI has found strength as the US economy looks stronger than Europe and the decline of crude stocks at Cushing, Okla., the delivery point for the Nymex WTI futures. While the world waits for Europe, data seems to suggest that the sparing over Greek haircuts (no, I am not talking about Telly Savalas) and bank rescue funds has zapped the confidence of Europe, increasing the odds of a recession.