The likely overthrow of Libyan leader Colonel Muammar Gaddafi may have sent oil prices falling in recent days, but a return to full oil production in Libya is not likely for some time to come due to on-going security issues, say analysts Brent crude futures have dropped from highs of $120 a barrel (bbl) at the beginning of the month to current levels around $108/bbl as Libyan rebels move ever closer to securing Tripoli and unseating the Gaddafi regime. "The whittling away of Gaddafi's position has occurred due to the choking of supply lines and the damage to his coercive capabilities from airstrikes," says Henry Smith, a Libya analyst at Control Risks. Smith is an expert on political risk analysis in the Middle East and North African region. He believes that security is the key consideration for the successful production of Libyan oil. "Ultimately it's a question of security. The international oil companies (IOCs) need security guarantees at the fields but they also need to engage with the right individuals in Libya. They need to understand how the new power structures are going to work. At the moment, contingency plans are being made, but we need the dust to settle and a little more clarity as to where security is going." Libya's pre-crisis oil production levels of around 1.6 million barrels per day (b/d) had fallen to a mere 53,000 b/d by July, according to the Organization of Petroleum Exporting Countries (Opec). Clearly there is a lot of room for production to increase, but the question is how quickly will the IOCs return and how quickly will production return. "Since February, production in Libya, at least in the opposition controlled fields has always hinged on the ability to maintain security at the fields," says Smith. "As we are seeing the decline of this regime, it doesn't mean the opposition are going to be able to immediately maintain security. You have issues with militia factionalism, loyalist violence, weapons proliferation, and no central security apparatus in Libya at the moment. If security can be maintained, we will begin to see a few hundred thousand bpd of oil being produced relatively quickly," he says. A Commerzbank commodity report forecasts "a substantial part" of Libya's oil production could return to the market by the end of the year, putting one million barrels as a realistic figure. This would ease the supply situation within the country, the bank says. Nevertheless, the report sees prices below $100/bbl for Brent crude oil as unlikely in the short term. Further monetary easing, Saudi supply issues and Opec's need for higher prices will provide support, the report says. A report by Barclays Capital is less optimistic on the speed of return of Libyan oil production. It reports that continuing violence, weapon stockpiles and a potential humanitarian crisis are all key issues that need to be addressed. The report draws parallels between Libya and Iraq. Iraqi oil production took eight years to reach its pre invasion peak. Barclays Capital believes that Libyan oil production will also take considerable time to reach pre crises levels. "Even if a regime change does unfold, the prospects for Libyan oil exports this year are not very good, in our view," the report says. Barclays Capital forecasts an output level of 250,000 to 500,000 bpd by the end of the year and forecasts Brent crude prices to be at $110/bbl and $115/bbl in Q3 and Q4 2011. Research by Morgan Stanley forecasts production to reach 300,000 to 400,000 bpd in the next three months or upwards of 600,000 bpd in "a bull scenario". Depending on which of the two scenarios for production develop, the bank forecasts crude prices to average $114–116/bbl during 2011. The report specifies that in order to restore full production, Libya will need to restart its older wells such as the ones at Sirte. The Sirte basin is responsible for almost two-thirds of all production. Such wells will require international expertise and reinvestment. As a result, Morgan Stanley views it as highly unlikely that Libya will return to full production before the end of 2012.

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