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Monday, June 27, 2022

Resumption of Libyan Oil Production Disrupts Markets

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A new wave of coronavirus lockdowns is already slowing oil price recovery. Now, commodity traders have a new headache with Libya’s resumption of exports.

The civil-war-torn country’s oil industry has been shut down since January. However, exports will restart imminently thanks to a truce and an agreement between the main factions of the conflict made over the past week to share petrodollars more evenly.

A return of Libyan barrels would come amid volatility in crude price as virus cases accelerate.

It is still early days in Libya — and previous agreements to reopen the oil sector have failed. But the state energy firm is predicting supply will roughly triple this week to 260,000 bpd. Goldman Sachs reckons exports could reach double that by year-end, while Bloomberg Intelligence thinks a figure of close to 1 million is possible.

That might not seem like much in the context of the global market. But OPEC+’s massive supply cuts since April mean any additional output can put downward pressure on prices. If things go smoothly in Libya, an extra million bpd of oil could be online. That can only be bad for oil bulls.

Notably, Libya’s state oil company reopened another port, on Wednesday, the third to resume operation in less than a week, as a political truce takes hold in the OPEC member’s devastating civil war.

The National Oil Corporation is ending force majeure — a legal status protecting a party that can’t fulfil a contract for reasons beyond its control — at Zueitina in eastern Libya after a “significant improvement” in security there, it said Tuesday.

The NOC allowed exports to resume days earlier from the Hariga and Brega terminals. The three ports had been shut down since January as part of a wider blockade.

The NOC said it is evaluating security at Libya’s other export terminals as the country with Africa’s largest crude reserves edges closer to reviving its battered oil industry.

Production nationwide will be more than double by next week to 260,000 barrels a day, the company said late Monday.

Libya’s daily crude output slumped as a result to less than 100,000 barrels from 1.2 million last year. The NOC said Wednesday that it shipped $38.2 million of oil, natural gas and condensate in July, the lowest monthly figure this year.

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