Oil market's 'knee jerk reaction' to Libya

AARON SMITH | AUGUST 2011 | SOURCE: CNN Money

Brent crude oil prices are easing but don't expect that to to translate into sharply lower U.S. gas prices anytime soon.

Brent oil -- Europe's benchmark -- fell 1.2% to $107.27 a barrel, as Moammar Gadhafi's regime totters on the brink of defeat. U.S. gasoline prices are closely tied to Brent, with many U.S. refineries using imported oil to produce gas, especially on the East Coast.

Oil market's 'knee jerk reaction' to Libya

The decline in Brent may eventually translate into lower U.S. crude prices, but for now those prices are up 2% at $83.46 a barrel.

"I think the Gadhafi ouster has the capability of removing some upward pressure on world oil prices very short term, but his removal, and any subsequent government's effort to resume significant Libyan exports will be a story in 2012 at the earliest," said Tom Kloza, chief oil analyst for Oil Price Information Service.

Manouchehr Takin, senior petroleum analyst at the Center for Global Energy Studies in London, said the return of Libyan production will more likely be a gradual flow.

The state of the oil infrastructure in Libya remains uncertain, he said, and there could be unforeseen factors that would interfere with the resumption of production.

For example, Takin said there was trouble bringing Iraq's oil supply back online after the U.S. invasion of 2003, because Iraqi engineers were being murdered by hardliners for cooperating with Americans.

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