Libyan rebel forces may be on the verge of taking full control of the capital Tripoli, but this has done little to ease oil prices on the NYMEX.
 
October futures have now recovered the $85 per barrel level, as expectations of an announcement of further QE at Jackson Hole this Friday pushes the US dollar down and lifts risky assets. Early optimism about a full resumption of Libyan oil production now that the rebels appear to have the upper hand over Colonel Gaddafi’s remaining forces was tempered by the realisation that repairs to oil infrastructure in the country could take some time. Pre-war production was 1.6 million barrels per day, but this has been slashed to 50,000 barrels per day as a result of the conflict.
 
Crucial to the meaningful resumption of supply will be whether the rebels can establish law and order, or whether, as in post-Saddam Iraq, lawlessness and disorder spread. Expectations that Ben Bernanke will fire up the printing presses once more have given risky assets a boost, and this has given oil a lift as well on the basis that the global economy will be on firmer ground if the Federal Reserve takes explicit action. However, investors should be cautious about whether this rally can be sustained post-Friday. Bond markets have priced in around $500 billion in asset purchases, and if Ben Bernanke disappoints by not announcing new measures then this week’s rally could be quickly undone. Indeed, even if he announces something of note, the reaction could be one of ‘buy the rumour, sell the fact’, with NYMEX futures easing anyway as traders pare back bets. The future, as ever, remains uncertain.