Libya’s breakup could lead to lower oil production – markets question how long this will last | Wilnesh News

Libya’s political deadlock threatens to once again paralyze the North African country’s lucrative oil industry, but its frequent power struggles and crude supply disruptions have called into question the long-term support for oil prices.

Libyan politics has been divided since the NATO-backed overthrow of Gaddafi, once again caught between the internationally recognized government in Tripoli of Abdul Hamid Dbeibah and a rival government in Benghazi in the east backed by Libya’s top legislative body, the House of Representatives conflict. Hanging over them is the specter of eastern warlord Khalifa Haftar, whose allied forces defend and control most of the country’s oil fields.

Tensions over the fate of oil revenues have heightened again recently, as Dbeibé’s efforts to oust central bank governor Sadiq Kabir prompted the government in Benghazi to announce the closure of oil fields.

Libya’s National Oil Company (NOC), which manages the country’s hydrocarbon resources, has not yet commented on the announced closure, but its subsidiary Waha Petroleum Company has admitted that “protests and pressure may lead to a halt in oil production”. statement.

Fellow subsidiary Sirte Petroleum cited the same reasons for the need to “gradually reduce production” in a Google Translate article and urged “specialized agencies to intervene to maintain the continuity of oil production.” social media posts.

Libyan sources, who could only comment anonymously due to security concerns, told CNBC that several oil fields have completely shut down or reduced crude production.

Prior to the latest escalation, Libya’s largest oil field, the 300,000 barrels per day El Sharara oil field, was shut down in early August due to protests orchestrated by demonstrators in the Fezzan region. Statoil later declared force majeure on El Sharara’s crude exports on Aug. 7 – a legal provision that applies to companies that fail to deliver oil supplies due to circumstances beyond their control, according to notes to customers from the company. .

Libyan sources told CNBC that since then, production of Es Sider, Libya’s largest export crude grade, has declined, the Dhahra field has been shut down, and the Amal, Nafoora, El Feel and Mesla fields have also gradually or completely ceased production.

Libya, a member of the influential Organization of the Petroleum Exporting Countries (OPEC), produced 1.18 million barrels per day of crude oil and 700,000 barrels per day in July, according to an independent assessment cited in OPEC’s monthly oil market report. It said earlier this week that 900,000 bpd of that output “could be shut down by the end of the week” and warned that supplies and exports from much of Libya’s hydrocarbon-rich “oil crescent” region were “days away.” It will be offline within a few days and the outage will last for several weeks.

Andrew Bishop, global head of policy research at Signum Global Advisors, echoed the sentiment, describing the recent shutdowns as “a real thing” and noting that in “zero” cases the disruptions could last “at least a month.” Maybe even longer)”.

But Libya’s oil production has long been held to ransom by capital or political advantage, and the frequency of brief disruptions has undermined expectations among some market participants that the recent turmoil will persist long-term. Oil prices, which have been falling on weak demand from China, the world’s top crude importer, rose on Monday on reports of trouble in Libya but gave up most of those gains in Tuesday trading.

Prices fell again on Wednesday, Brent Crude Oil Futures At 12:57 pm London time, the October expiry contract was trading at $78.42 per barrel, down 1.13 cents per barrel from the previous settlement price. Recent month October NYMEX WTI Contract Oil prices were at $74.31/barrel, down $1.22/barrel from Tuesday’s closing price.

“Based on the reports from Libya, prices are not staying high, especially because, a couple of things: I think the first thing is because of the current disagreements about the Central Bank of Libya, which I think will probably be resolved soon, Rystad Energy Oil Jorge Leon, senior vice president of market research, told CNBC on Wednesday.

“We haven’t really seen … supply disruptions in Libya continue to expand over the past two years or even longer, (the past) two-and-a-half years, and I don’t think that will happen this time either. different.

Goldman Sachs analysts also believe potential chaos in Libya will be short-lived.

“Market participants appear to be optimistic,” Barclays’ Amarpreet Singh commented in a report on Tuesday, noting that “to some extent, the situation in Libya is reminiscent of geopolitical tensions in the Middle East.” Intensified as fundamentals may move in the opposite direction.