For better or for worse, the expectations of Egypt’s turmoil expanding into neighboring regions proved to be true. And to be true to ourselves, we continue examination of oil prices, the WTI-Brent spread, to be more exact.

In comparison with Egypt, Libyan tensions are expected, at least in theory, to have a more noticeable impact on prices since the country holds a fair share of the world oil resources. According to the CIA World Factbook, Libya has the largest proven oil reserves in Africa — 47 billion barrels, and the ninth largest in the world.

You would guess that being the ninth in the world ranking implies a rather prominent stock; however, Libyan oil comprises only 3.4% of the total proven world reserves with the leaders (see the graph) presenting overwhelming offerings.

The Libya position in the world exporters’ ranking is even less crucial compared to other suppliers. According to the same source, in 2010, the total exported oil, including both crude and oil products, placed Libya in the 15th place (2.4% of the total) being surpassed by such countries as Norway, Canada, Algeria, and Netherland.

With all these factors in mind, can we still expect that disturbances in Libyan supply will have any noticeable impact on oil markets?

With the civil war unfolding in the country, expectations have been centered on increasing oil prices, especially for Brent. Theoretically, Libya’s turmoil might be responsible for driving Brent oil price up in the last several weeks since most of the country’s export volumes, 72% to be more exact, serves Europe (see the graph).

Both Brent and WTI oil prices have been following an upward trend for the most of the length of fighting between government and rebel forces in Libya. Supported by reports on pipeline damage and refinery fires, the expectations of the supply to worsen do make sense.

At the same time, one would expect that Brent’s growth will outpace that of WTI’s; however, the WTI-Brent spread has been actually narrowing. We decided to see what could impact the North American oil benchmark to move above the expected curve and decided that WTI stocks could be the culprit: during the last month, the WTI inventories have been continually declining.

It looks like falling oil stocks ensured a more steep upward movement for WTI towards closing the spread. Meanwhile, we found it not so simple to pass a judgment on which portion of this growth can be attributed to geopolitical events and which to decreasing stocks. Hence, the question stays open: what has a more prominent impact on oil prices?

(Written with contribution from Vera Tikhomolova)