Shares up, oil down as Libya regime is poised to collapse

After six months of civil war which cost global markets virtually all of Libya's 1.6 million barrels a day in output, around 2% of the world's supply, Brent slipped more than $2 a barrel to $106.12, well below recent highs above $127 a barrel in April.

The FTSE 100, which sank more than 5% last week, also bounced back more than 1% today as buyers were lured back into the market by the falls.

This took the blue-chip benchmark comfortably back over the 5000 level breached last week, up 79.92 to 5120.68, as commodity stocks drove the market higher.

Brewin Dolphin chief strategist Mike Lenhoff said: "I am sure that there are some bargain hunters active in the market. Equities might gain some momentum as the week progresses."

The ICE also saw brisk business in oil futures and options trading. A spokesman said the exchange had seen much higher than normal trading volumes as markets digested the news from Libya.

Restoring the central plank of the North African nation's economy will be the main priority for rebel forces once Gaddafi has been ousted as the condition of refineries, pumping stations and export terminals following the conflict is assessed.

Early reports suggested damage had been light, fuelling hopes that much of the nation's output could be re-established within months if a steady peace is established.

But the relatively small fall in Brent today reflected caution over the uncertain state of Libya's oil industry. Seymour Pierce analyst Brendan D'Souza said production could take longer to resume than markets hoped. He said "It takes time to get damaged facilities back on line. It could take anything between one and three years for them to get production back up to speed."

Analysts added that the possibility of a third round of quantitative easing from the Federal Reserve, currently being priced in by bond markets, could also keep oil prices high. This is because the commodity is priced in dollars and the currency would come under pressure if the US prints more cash.

Commerzbank analyst Carsten Fritsch said the possibility of a third round of quantitative easing is keeping oil buoyant. "Talk of QE3 will prevent a steeper price drop for the moment. Prices will remain above $100 for the time being."