Oil traders on global financial markets were taken by surprise just as Australians were heading to bed overnight.

There was news hitting their trading terminals: Libya’s eastern government in Benghazi announced oil production and exports in the North African country would shut down.

It caused the price of oil — which has implications for millions of businesses and motorists — to surge 3 per cent.

Bell Direct market analyst Grady Wulff said Libya’s halt to trade could mean a massive reduction in worldwide oil supply and eventually hit Australian motorists at the petrol pump.

“If [Libya] do cut output in their oil fields, that will mean that, moving forward, only about 300,000 barrels per day can go out as opposed to the 1.2 million barrels per day,” she said.

The cut to oil exports relates to a dispute between the eastern Libyan government and the internationally recognised western government — in Tripoli — over who should control the country’s central bank.

It’s Australia’s equivalent of the Reserve Bank.

Combine that with escalating tensions in the Middle East, and oil traders are preparing for further big swings in the price of crude oil, which is refined into products such as petrol.

Oil price spike predicted

Ms Wulff said she had seen increased hedging, a risk management strategy to offset losses in investments, in different industries that require oil, including airlines. 

“Hedging in forwards and futures contracts are definitely the preference right now, because there’s so much volatility on the horizon and so much unknown about what’s going to happen post these wars should they happen,” she said. 

Hedging by traders implies an expected significant move in the price of oil.

So, is that up or down?

“US recession concerns are easing, and there’s more likelihood of a war breaking out in the Middle East, so that drives the price of oil up as opposed to US recession fears driving it down.”

Shane Oliver is the head of investment strategy at financial services company AMP.

He said geopolitical tensions were pushing the price of oil higher, but slowing global economic growth — and the lower demand that followed — should keep a lid on any oil price rise.

“I think in the absence of a complete flare up in the Middle East disrupting Iranian fuel supplies, the oil price will probably remain range bound,” Dr Oliver said. 

But there’s a caveat to Dr Oliver’s forecast.

“That would threaten oil production out of Iran. It’s a much more significant producer [of oil]. I think it’s about three million barrels per day.

“Yes, we can’t buy their oil, but other countries around the world do and if that oil is taken out of production or supply, then that would have a significant global impact than the situation in Libya. So that risk is high.”

Changing petrol prices

So, what can Australian motorists expect to pay at the pump over the next little while?

The answer might surprise you.

Motoring group NRMA spokesperson Peter Khoury said it was difficult to predict, but in the short term he hoped to see the current downward trend in oil prices continue and flow on to motorists at the petrol pump. 

“Certainly, in the next week or so, in the biggest of the cities, in Sydney, Brisbane and Melbourne, we’re expecting those prices to fall in accordance with the [petrol price] cycle,” he said. 

“They will fall to what we hope will be at least 13-month lows — so well below $1.60.”

Mr Khoury said the wholesale petrol price was the best domestic petrol price indicator and it was now at $1.63, the lowest price since January last year.

“It means that motorists should start to see prices in their local areas, at some point, in the high $1.60s, which we haven’t seen for quite some time,” he said. 

But as the war in Gaza continues, it means there is no end in sight to the uncertainty in the Middle East, and it’s unclear when Libya’s political tensions will ease — meaning despite hopes, the downward petrol price trend may be short-lived.