Oil Price Surges Amid Libyan Oil Shutdown
Libyan Oil Turmoil Causes Oil Price Spike
The volatility in daily oil prices continues, with oil prices experiencing a surge one week after hitting the lowest price of the year. The spike is attributed to the ongoing turmoil in Libyan oil production.
Brent crude oil price rose by as much as 3%, briefly exceeding $80, following the suspension of oil exports from five eastern ports in Libya. This has resulted in a further dip in the country's output due to an intensifying stalemate over control of the central bank.
Suspension of Oil-loading Operations in Libya
According to Bloomberg, the eastern-based government in Libya ordered the suspension of oil-loading operations at the ports of Brega, Es Sider, Ras Lanuf, Zueitina, and Hariga. These terminals have a combined capacity of approximately 800,000 barrels a day. This means that almost all of Libya's output is currently landlocked.
Libya, a member of OPEC, has been divided between eastern and western rival governments for about a decade due to a power struggle.
Political Crisis and Oil Output
Libya, which produces about 1.2 million barrels per day (bpd) of oil, was thrust into a deeper political crisis earlier this month due to a dispute over the leadership of the Central Bank of Libya, the only internationally recognized depository of the country’s oil revenues.
The Benghazi-based government in eastern Libya, a rival to the Tripoli-based government in the west, announced on Monday that it would shut down all crude oil output and exports. While the east-based government is not internationally recognized, it controls most of the country’s oilfields.
Escalating East-West Rivalry
The situation in Libya has worsened over the past weeks, with the east-west rivalry intensifying once again, focusing on the leadership of the Central Bank of Libya, which is responsible for Libya’s wealth and income from oil exports.
The internationally recognized government in the capital city, Tripoli, is attempting to replace Sadiq Al-Kabir, the governor of the Central Bank of Libya. This has led to the latest dispute between the eastern and western governments and political factions, threatening to further reduce Libya’s oil production and exports.
Impact on Oil Prices
Additional support for oil prices today came from continued expectations of an interest rate cut in the United States next month. However, this positive movement is unstable and could reverse later in the day due to bearish factors.
On the bearish side, Biden's EIA reported only a modest draw in oil inventories yesterday, at less than 1 million barrels. Despite this being the second weekly draw in a row, it did not seem to impress the market much. Demand for oil remained a concern.
Analysts' Views on the Situation
Analysts Warren Patterson and Ewa Manthey from ING noted that Libyan output has dropped this week by close to 500k b/d, not including the shutdown of the Sharara oilfield earlier this month. They stated that a prolonged shutdown from Libya will provide OPEC+ with more comfort in increasing supply in Q4 2024 as currently planned.
The analysts also noted that the Libyan outage will make OPEC+’s decision on whether to bring back some production more difficult, and they expect the cartel to resist that temptation to avoid a price rout.
Bottom Line
The ongoing political crisis in Libya and the subsequent impact on oil production and exports is a significant concern for the global oil market. The situation is complex and has the potential to further disrupt oil prices. What are your thoughts on this development? Do you think the situation in Libya will stabilize soon, or will it continue to impact global oil prices? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
