Oil price drops on hopes of Libyan export resumption

Brent crude dropped more than $3 to below $106 a barrel on the potential for a resumption of exports from OPEC-member Libya as a six-month civil war there appeared close to an end.

Libya pumped around 1.6M barrels per day (bpd), nearly two per cent of global supply, before the war cut output. Most of Libya's high-quality crude flowed to European refiners, and tightening supply after Libyan exports stopped drove Brent towards a two-year high of $127.02 in April.

Brent crude dropped as much as $3.08 to $105.54 per barrel.

US crude fell 82 cents to $81.44 a barrel.

It may take years for output from the world's 17th-largest oil producer to fully recover, but rebels hope to resume oil output -- Libya's main revenue earner. Analysts say output of as much as a million bpd could be feasible within months.

Rebels swept into the heart of Tripoli and crowds took to the streets to celebrate what they saw as the end of Muammar Gaddafi's four decades of power, but a government fightback was reported as dawn broke on Monday.

"You will see a relaxation in the supply of crude to the region as a result of what is happening in Libya," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney on how supplies coming back are hitting prices.

Tight supplies of Libya's light sweet crude in Europe helped fuel a widening of the spread between Brent and U.S. WTI crude. The spread is already narrowing and could contract further with the prospect of a resumption in Libyan supplies, Barratt said.

"The important thing to note is that Brent and WTI (spreads) should be trading at $1-$2. The spreads between WTI and Brent should continue to unwind as Libya's light sweet crude is added back to the market."