Commodities – Rebels take over Libyan capital, oil prices expected to fall further

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Oil prices are expected to drop further if Libyan leader Colonel Muammar Gaddafi is removed completely from power. Libya has the largest proven oil reserves of any African country.

By Monday Libyan rebels claimed to be in control of most of the Libyan capital Tripoli and also seized Gaddafi’s compound right in the city. Celebrations broke out in Green Square, the city’s main square, as rebels claimed to celebrate the beginning of the end of Gaddafi’s nearly 42 year regime, when he seized power after a 1969 coup.

The international community called on Gaddafi to step down and moved ahead with post-war planning, though his whereabouts are still uncertain. His two sons have already been arrested.

Analysts believe that as political calm will slowly be restored in the country, the political risk premium on oil will soon be gone and oil prices will move lower, helped by an increase in oil production. It is predicted that Libya could start pumping as much as one million barrels a day within a few months, to reach close to the pre-war figures when production was over one and a half million barrels a day.

Shares of European companies with business in Libya, including Eni SpA and Total SA, gained on the prospect of an end to the conflict.

Oil prices have already fallen significantly since August 17th when crude prices were at $89 a barrel and dropped to as low at $79 before a rebound to $83 which is where prices settled around today and consolidated under that resistance level.