Global stocks recover after oil price decline

Specialist Michael Gagliano, right, works with a trader on the floor of the New York Stock Exchange Thursday, Feb. 24, 2011. (AP Photo/Richard Drew)
Specialist Michael Gagliano, right, works with a trader on the floor of the New York Stock Exchange Thursday, Feb. 24, 2011. (AP Photo/Richard Drew) (Richard Drew - AP)
The Associated Press
Friday, February 25, 2011; 12:21 PM

LONDON -- Stocks recovered their poise Friday following the previous day's sharp drop in oil prices on hopes that Saudi Arabia could make up for any shortfall in crude production from Libya.

The catalyst to Thursday's decline in oil prices was the expectation that Saudi Arabia, the world's biggest crude exporter, could pump more oil out to make up for lost supplies from Libya, which is effectively split into two after a popular uprising.

Under normal circumstances, Libya produces about 1.6 million barrels of crude per day, but its output has been heavily affected by the violence that has caused nearly 300 deaths, according to a partial count by Human Rights Watch.

In London, a barrel of Brent crude was up 15 cents at $111.51 a barrel, still $8 or so below its high point on Thursday. Meanwhile, the equivalent New York rate was down 7 cents at $97.23 a barrel, again around $5 down from the previous day's peak.

The knock-on effect on stocks has been positive as investors appeared releived that the recent sharp rise in oil prices has come to a halt, however briefly - the fear is that sky-high oil prices will choke the fragile economic recovery around the world.

In Europe, Germany's DAX closed up 0.8 percent at 7,185.17 while the CAC-40 in Paris rose 1.5 percent to 4,070.38. Britain's FTSE 100 index of leading British shares ended 1.4 percent higher at 6,001.20 after trading resumed following an earlier technical glitch that closed the market for about four hours.

In the U.S., the Dow Jones industrial average was up 0.4 percent at 12,114 around midday New York time while the broader Standard & Poor's 500 futures rose 0.8 percent to 1,316.

Libya was likely to continue to dominate sentiment as the trading week comes to a nervous end.

With reports indicating an escalation in the violence in the capital city of Tripoli, and large parts of the country under the control of opposition groups, there are fears that longtime leader Moammar Gadhafi may be preparing for a bloody showdown.

Autocratic leaders in Tunisia and Egypt have already had to quit this year following massive popular uprisings.

The biggest worry in the markets is not Libya but whether the crisis spreads through the Persian Gulf's bigger energy producers. Already Bahrain's government is facing daily protests and there are fears that Saudi Arabia's royal family may be next in line to face the wrath of its people. The announcement of a massive $36 billion package of benefits earlier this week was seen as an attempt by Saudi King Abdullah to ease popular discontent.

"If the political unrest was to spread to the world's largest oil producer, markets would have to discuss the possibility of a new oil crisis and its consequences for the global economy," said Ashley Davies, an analyst at Commerzbank.

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