Thursday 12 September 2013

Libya's Production Collapse

We're effectively seeing a shuttering of the Libyan oil industry. The end game remains to be seen. But it will be interesting to see how quickly, and by how much the other OPEC countries can ramp up production to offset this supply loss. According to the EIA Libya had averaged exports of 1.3 million bopd in 2012. With Reuters reporting expected current exports of 80,000 bopd equating to the removal of over 1.2 million bopd from the market (For reference: According to NDIC data the Bakken averaged production of 756,985 bopd).  Here is the latest. 

Libya Oil Output Drops to 150,000 bopd, Exports at 80,000 bopd (Rigzone):
TRIPOLI, Sept 4 (Reuters) – Libya's oil production has fallen further to around 150,000 barrels per day (bpd), lower than last week's official estimate of around 250,000 bpd, as protesters continue to cripple the sector, an National Oil Corp official said on Wednesday.

(Reuters) - The global oil market is well balanced and top exporter Saudi Arabia ready to supply whatever volume of crude is needed to meet demand, Saudi Oil Minister Ali al-Naimi said on Thursday.
"Our (OPEC) production last month was almost the same as a month before, only 100,000 barrels a day shortage. There is no effect whatsoever...we won't see a crisis."Saudi Arabia pumped a record 10.19 million barrels per day in August, an industry source told Reuters.
Libya still a bigger risk to oil than Syria: Credit Suisse (CNBC)
Brent crude futures surged to a six-month high on Tuesday, reflecting fears that punitive air strikes against Bashar Al-Assad's government may be days away after the regime allegedly used chemical weapons last week in an attack on a Damascus suburb.Syria was a secondary factor behind oil's surge yesterday, which Credit Suisse saw as chiefly driven by "the likely prolonged absence of more than 1.0 million barrels per day of Libyan oil exports."

I think this makes alot more sense to me. In a previous post I wondered about a premium that would price in the risk of a widening conflict in Syria. I posited that any material impact on global markets would require Iran not only injecting themselves in the conflict, but also throwing a hail marry at the Strait of Hormuz. The CNBC article above mentions the oil terminus of the 1 million bopd Baku-Tbilisi-Ceyhan pipeline in Ceyhan that runs 50 miles from the Syrian border as being a logical target of reprisal. But when it comes to impacting markets, the dominating factor must now be the real drop in Libya over the hypothetical impact of Syria.  

As far as future impact is concerned, we might just get a glimpse at the vaunted Saudi 'spare capacity'. If Libyan production remains at these levels for significant amount of time, the strategy and ability of the Saudi's to turn on the taps may be revealed.

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