Short-term hike in oil prices is no reason to panic

There will be no lack of opportunity in the coming days and weeks to declare a new oil crisis looming just over the horizon. But the politics will be exciting enough without whipping up an oil panic.

All markets thrive on trade volume, and trade rises and falls with the headlines of the day. The oil market is particularly susceptible - and a key indicator of regional and global growth. So it is little surprise that the current turmoil in Libya and neighbouring countries, and the headlines churned out day by day, has percolated into oil industry forecasts.

The recent popular uprisings in Tunisia and Egypt had already helped to force the price of crude oil upwards past $100 per barrel. As The National reports today, some analysts have even predicted that further instability might push the price further up and possibly break the $200 barrier.

Such pessimism continued to prevail yesterday as Brent oil prices rose to $119.8 in London trading; the West Texas Intermediate passed $100 a barrel in New York. In part, these are short-term reactions to the now-infamous speech delivered by the Libyan leader Muammar Qaddafi on Tuesday when he vowed to fight until his "last drop of blood", all but declaring war on protesters. But even backed into a corner, the Libyan leader should hardly be allowed to dictate energy prices.

Goldman Sachs warned yesterday that further unrest in oil-producing nations could create severe shortages and require demand rationing. "The market cannot accommodate another disruption, in our view, with the problems in Libya potentially absorbing half of Opec's spare capacity," Jeffrey Currie, a Goldman Sachs analyst, told Reuters.

Already there are whispers that continued unrest could affect the recovery from recent financial crisis. Fuel costs drive transport costs, and so follows global trade from foodstuffs to industrial feedstock. And, truthfully, it is far too early to predict what will happen in Libya, much less other Middle East oil producers affected by popular movements.

Now, take a deep breath. Opec already maintains that it would increase production to cover any shortfall from reduced output from Libya's oil fields - just among Opec members, there is an estimated five million barrels of spare capacity to fall back on. Regardless, international oil reserves have been hoarded against a shortage event.

In the coming days and weeks, there will be no lack of opportunity to declare a new crisis looming just over the horizon. Speculators will make their bets on the markets, there will be winners and losers, and that in turn will even out the risks.

May you live in interesting times, an old Chinese curse warns. These are indeed uncertain, interesting times, and it is too early to predict the outcome. The politics will be exciting enough without whipping up an oil panic.