The return of Libyan oil to world markets may provide some relief at the pump for U.S. consumers, but don't expect a big drop in prices as refining and economic factors are more at play.
Energy experts say Libya was already working to restore production of the light sweet crude that fed European and east coast U.S. refineries, but the demise of Muammar Gaddafi could end the fighting, allowing the new government to focus resources on restarting production.
"I hear that the speed of recovery of oil production is way ahead of what people thought," said Goldman Sachs Asset Management chairman Jim O'Neill.
Before the revolution that toppled Gaddafi, Libya exported about 1.8 million barrels per day of crude.
"I think they could do 500,000 barrels a day by January," said John Kilduff, analyst with Again Capital. He said Libya is currently producing about 200,000 barrels. ENI has restarted its production.
J.P. Morgan's Laurence Eagles said in a note Thursday that the end of the Gaddafi regime means little for current oil prices but it does remove a series of risk factors to a sustained ramp up in production.
"We would argue that virtually all of the news emerging from Libya over the past six weeks had been positive on the production side and we believe that the oil market is discounting a relatively rapid return of at least the first 700 kbd of production," he wrote.
Tom Kloza, chief analyt at OPIS, does not expect a big impact on gasoline.
"Basically he was dismissed as a factor somewhere in the summer when it became clear Tripoli was going to fall and some kind of command and control was set up to get the fields resurrected and the production resurrected," he said.
"The transition that happened since Libya basically became the story is the oil market is now moving much more on the notion of the bipolar way everyone reads recession. Without recession, it's very clear we have a bias to the upside for crude oil and refined products at least for the next six months," he said. "If you're rooting for lower prices, you're basically rooting for recession."
Kloza said he is concerned that gasoline, which was above $4 gallon in many parts of the country this summer, could reach $4 during the spring of 2012. The national average is now $3.474 per gallon for regular gas, according to AAA.
"I think it's a problem in the second half of 2012. We have some big refiners coming on stream. One in the Gulf Coast and one in the Asia Pacific but in the first part of 2012, we have a lot of refining maintenance and we also have the closure of a key refinery operated by Conoco Phillips on the Delaware River," in Pennsylvania, he said.
The US East Coast has been particularly sensitive to the loss of Libyan oil since its refineries process the sweet light crude, not the West Texas Intermediate used by Midwest refiners.
Andrew Lipow of Lipow Oil Association said the Conoco facility removes 100,000 barrels a day of gasoline from the mid-Atlantic region, which uses about 1.1 million barrels a day. Lipow said he expects Brent crude, which reflects the price of oil internationally, to weaken as Libyan production returns.
"That should provide a little relief to gasoline prices but not as much impact as people expect or like," he said. "We have seen gasoline inventories decline over the last couple of weeks."
Lipow too noted the shutdown of the Delaware River refinery and cautioned that Sunoco will decide whether to sell or shut down two refineries in the same region in 2012.