NEW YORK-Oil prices plunged yesterday after Libya declared a cease-fire and said the government would stop military operations against rebels.Foreign Minister Moussa Koussa announced the cease-fire, shortly after the UN voted to authorise a no-fly zone and "all necessary measures," including airstrikes, to protect Libyan citizens from forces loyal to Muammar Gaddafi.Koussa said the cease-fire "will take the country back to safety" and ensure security for all Libyans. Despite his announcement there were reports that fighting continued in some parts of the country.
Benchmark crude dropped on the New York Mercantile Exchange after the cease-fire announcement, tumbling US$2.51 in 15 minutes, or nearly 3 per cent. At midday West Texas Intermediate oil for April delivery was down 79 cents at US$100.63.In London, Brent crude lost US$1.16 at US$113.49 per barrel on the ICE Futures exchange.Yesterday's drop was just the latest turn in an especially volatile market. Oil prices surged as much as 27 per cent in the past month as pro-reform uprisings swept through North Africa and the Middle East, ousting leaders in Tunisia and Egypt.
The region is home to OPEC heavyweights Saudi Arabia and Iran, and it produces 27 per cent of the world's oil.Early yesterday crude prices climbed as the UN no-fly zone announcement raised concerns that military units from the US and Europe would be pulled into the crisis.Still, oil prices remain well above where they were before the Libya uprising. The rebellion continues to cut off most of Libya's oil exports, which previously satisfied nearly 2 per cent of world demand at 1.5 million barrels per day. Oil traders say they're also worried that the UN action, combined with growing unrest in Bahrain and Yemen, will further erode trade relations between OPEC and the West.
Yemeni security forces shot at anti-government demonstrators Friday, killing at least 31 people. And a senior Iranian cleric urged Bahrain's Shiites to keep up their protests against the Sunni monarchy "until you die or win."The recent jump in oil has hit energy markets as the global economy gradually recovers from recession. Higher prices resulted in a surprise trade deficit last month in China and helped keep US gas pump prices at the highest levels ever for this time of year. Retail gasoline slipped less than a penny on Friday to a national average of US$3.54 per gallon, according to AAA, Wright Express and Oil Price Information Service. That's still nearly 41 cents per gallon higher than a month ago and 74 cents more than the same time last year.
Economists say the rise in oil prices has hurt oil and gas demand in the US, the world's largest petroleum consumer. The Energy Information Administration said total petroleum demand in the US dropped in the first two weeks of March by 200,000 barrels per day.Moody's Investors Services said if oil stays above US$100 per barrel, it will further weaken the global economic recovery. The price of oil, coal and natural gas could rise as Japan rebuilds and increases imports to make up for power generation lost from damaged nuclear reactors. Most of Japan's power-about 28 per cent-comes from coal-fired plants. More than 50 nuclear reactors provide roughly 27 per cent of the country's power.Higher oil prices have also pushed up airfares around the world, and food prices could rise as costs increase for fertilisers and fuel to run farm equipment and to transport produce, Moody's said. Automakers in Japan and elsewhere could see sales lag because of higher fuel prices. (AP)