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Unrest in Libya Disrupts Oil Production Levels; Oil Once Again Pressures Recent Highs
Oil production in Libya dropped to below 400,000 barrels per day after foreign energy corporations advised their employees to evacuate the region, according to the chairmen of National Oil, which is the country’s state-run energy company.
He went on to say that Libya had no intention of ending its contracts with foreign energy companies and that he hopes the evacuated employees will return soon. He also argued that if this does not occur in the next few weeks, the risk exists that oil production in Libya could come to a complete stop.
These comments come at a time when military aircraft has been deployed from the U.S., U.K., Canada, France and Italy to initiate attacks on the Libyan air force and other targets. The aim of these attacks is to create a “no-fly” zone over the country, which was authorized previously by the United Nations.
Previously, Muammar Qaddafi had announced a cease fire proposition but this statement was taken back after news of the airstrikes. Qaddafi then ordered his military to attack rebel troops based in Benghazi.
Major oil centers in the country, including Ras Lanuf (the largest production area in the country), have been damaged during the conflicts between Qaddafi’s army and rebel troops after wide-scale protests calling for Qaddafi’s removal began during the middle part of February.
To gain some perspective of the ways the conflict has affected oil production from Africa’s third-largest oil producer, overall totals dropped by nearly 200,000 barrels to 1.4 million barrels for the month of February. 1.6 million barrels were produced during the month of January and fighting in Libya did not even start until February 17th. Total production for the month of March will be particularly interesting, as the operations in many companies have slowed down to a near halt.
Oil prices did see some selling yesterday after the Libyan government said it would be willing to stop military attacks and enter into negotiations with the rebel factions.
The April contract Crude oil slid 35 cents to $101 a barrel before reaching highs above $103 earlier in the week. We remain at elevated levels on a historical basis, as prices have risen more than 10% this quarter. Turmoil in multiple countries in the Middle East has been the main catalyst for this, as we have seen regime changes in both Tunisia and Egypt.
GBP/JPY has seen a great deal of volatility in the past few weeks (along with most Yen pairs) and the major consolidation that we have been seeing since the end of 2009 has finally broken from its consolidative ranges. On the daily charts the moves look significant because we did see closes below critical support levels, but this is not matched by the weekly charts, so we should be cautious of a false break and an incorrectly bearish bias. Major long term support is at 118.20, and we need to see a close below this in a monthly basis before we can truly turn bearish on this pair.
The oil prices is easing back some after finding support at the 50% Fibonacci level of the move from 85$, which remains at 96.20$. 103.80$ is now the resistance level to the topside while support below comes at the historical and psychological level of 100$. A break of support turns the bias to neutral, only a break of critical support at 93.40$ will accelerate gains to the downside. Daily indicators are flattening out at mid levels.