A modest retreat in oil prices following reports that Libyan rebels are willing to restart crude exports helped ease market concerns Monday that the global recovery would be brought to a standstill by sky-high energy costs.
Though Libya's longtime leader Moammar Gadhafi is defying calls from around the world to stand down, investors have been relieved somewhat by news that the bulk of the country's oil production is in the hands of the insurgents, who have reopened some ports for oil export.
The European Union's energy commissioner Guenther Oettinger said control over much of the oil and gas fields is in the hands of regional families or provisional regional leaders that have emerged from the revolt.
The news soothed concerns that the OPEC country's oil exporting capability will remain dramatically cut following the uprising, which has split Libya into two and left hundreds of people dead. Oil exports from the rebel-controlled eastern port of Tobruk, for example, have resumed.
How Libya's oil production develops is important as the country accounts for just under 2 percent of the world's crude output and has the largest proven oil reserves in Africa.
Sentiment was further helped by confirmation from Saudi Arabia's state-run oil giant that it had stepped in to compensate for the oil supply shortfall caused by the North African unrest.
By mid afternoon London time, the price of a barrel of crude on the New York Mercantile Exchange was 50 cents lower at $97.38 while the Brent rate in London was down 13 cents at $112.01 a barrel. At the height of the markets' concerns over Libya last week, New York crude had risen over $102 a barrel and Brent had advanced towards $120.
The decline in oil prices helped boost sentiment in stock markets.
In Europe, Germany's DAX rose 1.3 percent to 7,281 while the CAC-40 in Paris was 1.1 percent higher at 4,115.
The FTSE 100 index of leading British shares underperformed its European counterparts, partly because banking giant HSBC disappointed investors by warning that new capital rules would hurt earnings this year. HSBC's share price decline of 5 percent is important because it's such a major constituent of the index. As a result, the FTSE was up only 0.1 percent at 6,007.
In the U.S., the Dow Jones industrial average was up 0.4 percent at 12,177 soon after the open while the broader Standard & Poor's 500 index rose 0.5 percent to 1,326.
Analysts reckon that developments in the Middle East and North Africa will continue to dominate market sentiment for a while yet, especially if other oil-rich countries in the Gulf start to encounter similar uprisings to those which have already seen the longtime leaders of both Tunisia and Egypt step aside.
Given that backdrop, investors will be monitoring the situation in Oman, Saudi Arabia's next door neighbor, following the third consecutive day of unrest.
At current levels, oil prices have the potential to choke off growth as well as increasing inflation. If they were to rise to $200 a barrel, which many analysts think is possible in the event of contagion into the Gulf, then the dreaded double-dip recession could well materialize.
"There's little reason to believe traders will deviate the core of their attention in the short term from volatility in oil prices and the evolving geopolitical structure throughout North Africa and the Middle East as the next trading month rolls around," said Terry Pratt, institutional trader at IG Markets.
The turmoil in the Arab world has distracted attention somewhat from Europe's government debt crisis, which has already seen Greece and Ireland bailed out.
However, the Irish government that agreed the bailout lost a general election last Friday and all indications are that the new government, which will most likely be a coalition between the Fine Gael and Labour parties, will want to renegotiate the terms of the package.
For now, currency traders have taken the widely-expected election result in their stride and are more interested in developments in Libya and on Thursday's monthly policy meeting of the European Central Bank. By midmorning London time, the euro was trading 0.7 percent higher at $1.3842.
Though the ECB is widely expected to keep its main interest rate unchanged at the record low of 1 percent, a number of rate-setters have expressed concern that inflation in the 17 countries that use the euro is rising a bit too much for comfort.
Earlier in Asia, investor sentiment in Asia benefited from an announcement by Tokyo that Japanese industrial production rose for a third straight month in January. The Nikkei 225 stock average rose 0.9 percent.
Elsewhere, Hong Kong's Hang Seng added 1.4 percent while shares in the Philippines, India, Indonesia, Thailand and New Zealand — where a major earthquake devastated the city of Christchurch last week — also gained.
Mainland Chinese stocks advanced. The Shanghai Composite Index rose 0.9 percent and the Shenzhen Composite Index gained 1.2 percent.
However, Seoul's Kospi index dropped 1.2 percent following threats by North Korea to retaliate against South Korea for participating in annual military drills with the U.S.
Pamela Sampson in Bangkok contributed to this report.
- Moammar Gadhafi