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Spokane, Washington  Est. May 19, 1883

Oil industry braces for Libya fallout

Reserves could be used to stabilize markets

Jane Wardell Associated Press

LONDON – Oil consuming nations have emergency reserves they can use to stabilize markets in case the violence in Libya and the wider Middle East escalates and crimps production, officials said Monday.

But international executives and analysts meeting in London were nervously watching developments in the oil-rich region, worried about the sharp shock political unrest is giving to crude oil prices.

Oil prices jumped on Monday because of the ongoing turmoil in Libya, where Moammar Gadhafi’s son, Seif al-Islam Gadhafi, warned protesters on Sunday that they risked igniting a civil war in which Libya’s oil wealth “will be burned.”

Libya alone exports at least 1 million barrels of crude a day. Even more worrying for markets is potential contagion, or the spreading of the political violence to other countries in the Organization of Petroleum Exporting Countries – key exporters Saudi Arabia and Kuwait are considered potential flashpoints.

David Fyfe, head of the oil industry and markets division at the International Energy Agency, stressed that the IEA member countries’ reserves of 1.6 billion barrels of oil – equivalent to some 4 million barrels per day for the next 12 months – that could be brought onto the market if necessary. The IEA’s 28 members are mainly oil-consuming industrial nations such as the United States, Japan, Britain and Germany.

The IEA has used government stocks to steady the oil market only twice before, during the Gulf War in 1991 and after Hurricane Katrina hit the Gulf of Mexico in 2005.

“It’s very much a last resort, but it’s worth pointing out that it exists and has been used before when supplies have been disrupted,” he said.

Fyfe said the situation in the Middle East and North Africa was “of real concern,” noting that the region accounts for 60 percent of global oil resources and 40 percent of global gas resources.

“Compared to Tunisia (a minor crude exporter) or Egypt (not an exporter but a transit country), instability in Libya is a major concern to the oil industry,” said analysts at JBC Energy in Vienna.

David Buik, markets analyst at BGC Partners in London, noted that Seif al-Islam Gadhafi’s comments that there would be “rivers of blood” in Libya had also prompted a surge in gold prices to just above $1,400 an ounce.

BP has suspended operations and is evacuating around 40 expatriate staff and their families amid the escalating violence – halting operations in the North African country just four years after the British company returned from a 30-year hiatus.