August 26

Libya’s oil output ‘cannot be easily replaced’ during reported production halt, analysts warn

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Much of the focus in the oil market has been on the Middle East for months — but on Monday, attention was turning to North Africa, with reports that Libya’s eastern government had halted crude exports and production from the nation’s oil fields.

“Against a backdrop of geopolitical risk, Libya is costing us real barrels — barrels of light-sweet crude that, at this time, cannot be easily replaced,” Phil Flynn, senior market analyst at the Price Futures Group, told MarketWatch.

‘Libya is costing us real barrels — barrels of light-sweet crude that, at this time, cannot be easily replaced.’

— Phil Flynn, The Price Futures Group

Libya’s eastern government on Monday, which is supported by warlord Kahlifa Haftar, commander of the Libyan National Army, said it was shutting down all oil fields under its control — halting crude production and exports until further notice, according to news reports.

Agence France-Presse reported that the eastern government, based in Benghazi, controls most of the country’s oil fields. The move comes amid a dispute with the internationally recognized western government, based in Tripoli, over control of the nation’s central bank, Bloomberg reported Monday.

“As Libya exports so much of its production, the impact on exports should show up swiftly in real-time data,” said Matt Smith, head analyst, U.S., at Kpler. Libya has about 25 million barrels in onshore oil inventories and may start to draw some of that down, but regardless, a halt would lead to “exports starting to shrink in the coming days,” Smith said.

The National Oil Corporation, which controls the Libya’s oil resources, has not provided confirmation of the oil-field shutdowns, according to news reports.

In 2023, Libya produced 1.189 million barrels of oil per day and exported 1.024 million barrels per day, according to data from the Organization of the Petroleum Exporting Countries. Around 79% of the world’s proven crude-oil reserves are located in OPEC member countries, and Libya’s share of the group’s proven crude-oil reserves was at 48.36 billion barrels, or 3.9%, in 2023.

Libya is a member of OPEC, which holds a 79.1% share of the world’s proven crude-oil reserves.Photo: OPEC Annual Statistical Bulletin 2024

The eastern government wants to retract the dismissal of the governor of the Libyan central bank and change the way oil revenues are divided, said Anas Alhajji, an independent energy expert and managing partner at Energy Outlook Advisors.

“The impact of losing partial exports is limited. But losing all Libyan exports … will have a significant impact on global oil markets,” he said in a client update.

“The impact of the loss of Libyan oil is not limited to quantity, it extends to quality too — a situation that might affect light/heavy [oil] price differentials,” Alhajji said, noting that most Libyan crude is exported to European refineries.

Libya exports mainly the light-sweet grade of crude, which is lower in sulfur content and easier to process into gasoline.

Kpler provided a chart of Libya’s annual crude and condensate exports by destination, in thousands of barrels per day:

Most of Libya’s oil is exported to Europe.Photo: Kpler

Europe is the leading destination for Libyan barrels, and “increasingly so in recent years” — accounting for 85% of exports this year, said Kpler’s Smith.

Still, U.S. crude is “likely to be the biggest beneficiary here, as European buyers turn to light-sweet U.S. shale oil to replace lost Libyan supply,” he said.

“This explains why WTI is rallying so much today, outperforming Brent,” Smith said.

On Monday on the New York Mercantile Exchange, West Texas Intermediate crude for October delivery

CL.1  3.06% CLV24  3.06% climbed $2.59, or 3.5%, to settle at $77.42 a barrel. Global benchmark Brent for October delivery BRN00  -0.25% BRNV24  -0.23%  rose $2.41, or nearly 3.1%, to settle at $81.43 a barrel on ICE Futures Europe.

Back in 2020, Haftar, the commander of the Libyan National Army, was behind an eight-month blockade of Libya’s oil facilities amid a dispute over the country’s leadership.

Smith noted that the blockade “worked” — significantly disrupting production and exports, and showing Haftar’s ability to control the nation’s oil industry.

But “what makes the situation difficult is that the U.S. itself, the largest producer of light-sweet crude, is importing from Libya,” said Alhajji. He blamed the Jones Act, which requires that goods shipped between U.S. ports be transported on ships that are U.S. built and operated.

So the “loss of Libyan oil now will have a bigger impact than in the past,” he said.

Source: Marketwatch.com

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