John Whelan: Just how low could oil prices go?

Libya's oil production has been repeatedly disrupted by conflicts between various factions, since the removal of Muammar Gaddafi in 2011.

The latest shutdown has reduced Libya's oil output by 60%, echoing a similar blockade in 2020, which lasted for eight months and resulted in massive revenue losses.

The current shutdown stems from efforts to remove the present governor of the Central Bank of Libya, Sadiq al-Kabir, and its control of oil output.

A settlement, followed by an uncontrolled gush of crude oil onto the global market from Libya, could push prices down to $60 (€54) a barrel into 2025, according to analysts at Citi Bank.

Concerns about falling oil demand in China, fears of slowing US and European economies, and the impact of a restart of Libya's production, have added to doomsday pricing, with some analysts predicting a further fall to $50 (€45) a barrel.

And whereas this may be good news for airline operators, shipping lines, and the road-haulage industry, it cuts in to the efforts of governments to reduce the consumption of fossil fuel and transition to renewable energy sources. Low oil prices cut the appetite for the more expensive electric cars or for shifting away from home heating oil to solar or wind-farm energy.

However, the Organisation of Oil Producers (OPEC), which includes Saudia Arabia, the group's biggest producer, is expected to lobby for a reduced output from all members, to push prices back up. The International Monitory Fund reckons that Saudi Arabia needs a price of $96 (€87) a barrel to balance its budget.

The fall in crude oil prices will work its way down to the local petrol stations and to home heating oil, if the downward trend continues, giving a boost to consumer economies across Europe, the US, and Asia. It will resolve the current inflation challenges facing most developed economies.

Ireland's economy, with its dependence on oil imports, will get a sizeable boost, cutting down on the cost of air, sea, and road transport, as well as operating costs for most manufacturing industries.

China and India, which are still developing, with the associated urbanisation and rising car acquisitions, will also benefit from falling crude-oil prices.

Faced with threats from the increased use of clean-energy sources, including solar panels and wind farms, the oil-producing countries, including Russia and Iran, will feel the pain of falling crude prices, particularly where their economies are heavily dependent on income from their oil wells.

In the past, these oil-producing countries, led by OPEC, have collaborated to control the downward price trend by limiting oil-production output. And they can be expected to do so again at their planned October meeting.

In the past, political tensions have blocked certain oil-producing countries from selling their output internationally, such as the blockade of oil from Venezuela, which frightened global bulk oil buyers into chasing expected reduced volume and, in the process, pushing up prices.

However, this time it will not be quite as easy for OPEC and their allies, as geopolitical tensions do not seem to be having the impact they had in the past. The recent Iran-backed Houthi militants’ attacks on oil tankers in the Red Sea, which have forced tankers to take the much longer route around Africa, are a clear example. The attacks have not impacted crude prices. Nor have the sanctions against Russia, following its military invasion of Ukraine.

Global oil-market operators now seem to understand that geopolitical tensions do not immediately mean supply disruptions.

The oil supply-and-demand rules may be changing, but there are many major corporations and producing countries that will not easily let go of the rewards of crude oil.