Gaddafi loses control outside Tripoli and oil price turns down

Gaddafi's hold on power in Libya is slipping with reports that his authority is now confined to parts of Tripoli.Towns to the west of the capital have fallen and all of the east is firmly in opposition hands.

Gaddafi blamed the revolt on al-Qaida leader Osama bin Laden, and said the protesters were fuelled by hallucinogenic drugs.

Saudi Arabia is in discussions to increase its oil output to offset any loss of production in Libya. Recently U.S. WTI crude is down 0.5% to $97 a barrel (Brent crude is now flat on the day at $111, after spiking earlier to $120 a barrel). Traders were spooked when talk of a Face Book campaign to hold a day of action in Saudi Arabia took hold, but so far only a few hundred people have registered.

Algeria has officially lifted its 19-year-old state of emergency, according to the national Algerian Press Service. The action lifts restrictions on freedom of speech and assembly imposed to combat an Islamist insurgency. Worries that Algeria and Tunisia could join the turmoil was of particular concern given the gas pipelines which serve Europe cross these countries.

Oil price continues to rise on fears of Africa and middle east contagion

The FTSE 100 is currently down 58 points to 5,929 and the Dow Jones Industrials is down 42 to 12,175 as investors finally start worrying about rising oil prices and its potential impact on economic growth. Brent crude oil is up $3.8 to $109 a barrel.

The closure of oil production and refining in Libya has sent oil prices up to levels not seen for 2.5 years. As Civil war seems a distinct possibility in Libya, with Gaddafi's refusal to step down from power, the reassuring words from OPEC that they can increase supply has done little to reassure oil traders. Talk that Gaddafi may deliberately sabotage Libya's oil field's before he is forced from power as a final act of the "mad dog" hasn't helped sentiment. Troops disloyal to Gaddafi have taken second city Benghazi.

Safe haven's continue to be the flavour of the week with U.S. treasury bonds and gold rising (gold hit $1409 an ounce today) as fear begins to infect investors after weeks of euphoria. Riskier assets like AIM stocks are continuing to be sold off.

Finally, an opportunity to buy stocks for better value after weeks of rises meant there were little cheap targets to be had. This volatility will continue for the foreseeable future until the situation in Africa and the Middle East becomes clearer."Be greedy when others are fearful"!

Oil surges on Egypt issues

Oil futures had their biggest one day increase since September 30th 2009 as the riots in Egypt raised concern that protests would spread to the rest of the Middle East and disrupt the supply of oil particularly through the Suez Canal. Opec tried to calm nerves with suggestions that it could increase output to offset any supply issues through the Canal.

After falling to a 2 month low earlier in the week, March delivery crude futures were up to $89 (a rise of $3.85 or 4.8%).

Hosni Mubarek is refusing to resign as President of Egypt but he has dismissed his cabinet in an attempt to move public opinion in his favour.

Oil at 2 month low

March futures for  WTI (West Texas Intermediate) Crude Oil fell $1.68 to $86.19, the lowest since the end of November 2010.

Saudi Arabia’s oil minister, Ali al-Naimi, said that OPEC (Organistion of the Petroleum Exporting Countries) could raise output plus JP Morgan said in a broker note that additional supply was expected from the North Sea during 2011. The price was also pressurised by a stronger dollar - a strong dollar drives down commodity prices since they are sold in U.S. dollars.

The falling oil price probably didn't help matters in the U.K. oil shares together with the poor GDP figures. Though oil could continue to be week for the next few weeks on rising inventories, the outlook is for it to stay in the $85-95 range.