PAIV:Libya oil production could return sooner rather than later
Libya’s crude oil production could return even sooner than markets expect, according to a team of analysts at American investment bank Citigroup.
With the rebels now apparently controlling the streets of Tripoli the major oil producing country’s six month conflict appears to be nearing an end. Libya is now poised to become the third country in the Middle East and North Africa (MENA) to overthrow its regime.
This wave of uprisings helped spike oil prices above US$100 in recent months. But analysts at Citi reckon Libya could restart production sooner rather than later, which would alleviate some of the pressure on global energy markets.
Libya’s oil production is particularly significant to global prices. While it accounts for just 2 per cent of the world’s oil sales the majority of Libya’s oil is high quality light sweet crude, therefore it is much more valuable because of the larger amount of petroleum, kersosene and diesel that it produces.
Before the conflict erupted earlier this year Libya was producing some 1.6 million barrels of oil per day. Now less than 100,000 barrels are being produced each day, and none of it is being exported.
Citi’s London based analysts, led by Edward Morse, reckon Libyan crude exports could resume in the coming months, and reach around 400,000 barrels a day by the first quarter of next year. From that level the analysts reckon exports could then double to 800,000 barrels a day by end of 2012.
This could subsequently see high oil prices ease significantly. That may in turn provide a boon to the global economy, thanks to a reduction in downstream fuel costs.
“We are cautiously optimistic about the prospects for the establishment of security and a move towards political transition in Libya, though we do not underestimate the risks,” the analysts said in a note to clients.
“We see the return of Libyan crude sooner than markets expect, and continue to see Libya as able to produce 400,000 barrels a day by Q1’12 and upwards of 800,000 by the end of 2012.
“A quicker return to higher levels of Libyan supply is bearish on Brent prices.”
Whilst pointing out this potential for a quicker than expected restart, Citi also emphasised that other oil producing nations in the region may see further unrest, and the uprisings may gain momentum due to the rebels success in Libya.
“The success of the Libyan rebels could also embolden opposition efforts elsewhere, potentially re-invigorating the ongoing anti-regime movements in Syria and Yemen,” the analysts added. “Production from these countries plays a less significant role in global balances, but given the likely continuation of protest activity in the region, geopolitical risks remain high.”
