Libya’s divisions could fragment oil production – as markets wonder how long it could last

A political standoff in Libya is once again threatening to cripple the North African country’s lucrative oil sector – but repeated power struggles and crude oil disruptions have called long-term oil price support into question.

After the political division that has plagued Libya since the NATO-backed overthrow of Muammar Gaddafi, it finds itself once again mired in conflict between the internationally recognized Tripoli government headed by Abdul Hamid Dbeibah and a rival administration in eastern Benghazi that has been endorsed by Libya’s highest legislative body, the House of Representatives. The spectre of warlord Khalifa Haftar, whose allied forces protect and control most of the country’s oil fields, looms large.

Tensions have recently risen again over the fate of oil revenues, as Dbeibah’s efforts to dismiss central bank governor Sadiq al-Kabir prompted the Benghazi administration to announce the closure of oil fields.

Libya’s National Oil Corporation, which manages the country’s hydrocarbon resources, has yet to comment on the announced shutdowns, but its subsidiary Waha Oil Company acknowledged that “protests and pressures may lead to a halt in oil production,” according to a press release translated on Google. statement.

Another subsidiary, Sirte Oil Company, cited the same reasons for the need to “gradually reduce production” and urged “specialized authorities to intervene to maintain the continuity of oil production” in Google Translate. Posted on social media.

Libyan sources, who could only comment on the matter on condition of anonymity due to security concerns, told CNBC that many fields have either shut down completely or reduced their crude production.

Before the latest escalation, Libya’s largest field, Sharara, which produces 300,000 barrels per day, was shut down in early August amid protests by demonstrators from the Fezzan region. The National Oil Corporation then declared force majeure — a legal provision that covers a company when it fails to deliver oil supplies due to circumstances beyond its control — on crude exports from Sharara on Aug. 7, according to a note the NOC sent to customers.

Since then, production of Libya’s largest export grade, Es Sider, has fallen with the closure of the Dahra field, along with a gradual or complete shutdown at the Amal, Nafoura, El Feel and Messla fields, Libyan sources told CNBC.

OPEC member Libya boasted crude production of 1.18 million barrels per day in July, according to independent assessments cited in the August edition of OPEC’s monthly oil market report — and between 700,000 and 900,000 barrels per day of that volume could “likely be shut down by the end of the week,” Rapidan analysts wrote earlier this week, warning that supplies and exports from much of Libya’s hydrocarbon-rich “oil crescent” region “will be shut down within days, with power outages lasting several weeks.”

Echoing this sentiment, Andrew Bishop, head of global policy research at Signum Global Advisors, described the recent lockdowns as “the real thing,” noting that the disruption could last “at least a month (and possibly longer)” amid “distrust” between rival parties.

But Libya’s oil production has long been a victim of rivalries for financial or political gain — and the recurrence of temporary disruptions has eroded some market participants’ expectations that the recent turmoil will last a long time. Oil prices, which had been falling on the back of weak demand from China, the world’s largest importer of crude, rose on Monday on the Libyan reports — but gave up much of those gains on Tuesday.

Prices fell again on Wednesday, with Brent crude futures US crude oil futures for October delivery were at $78.42 a barrel at 12:57 p.m. London time, down 1.13 cents a barrel from the previous settlement. NYMEX WTI Contract The price of a barrel of US light crude oil reached $74.31, down about $1.22 from Tuesday’s closing price.

“Prices have not been kept high by the Libyan reports, especially because there are a couple of things: the first, I think, is the current dispute over the Central Bank of Libya, and I think the Central Bank of Libya is likely to be resolved soon,” Jorge Leon, senior vice president of oil market research at Rystad Energy, told CNBC on Wednesday.

“We haven’t really seen… extended disruptions to Libyan supplies over the past two years or even longer, [in the last] “It’s been two and a half years, and I think this time will be no different. I think both sides have an incentive to resolve this issue as soon as possible,” he added.

Analysts at Goldman Sachs also see potential Libyan unrest as short-lived.

“Market participants seem to be optimistic,” Amarpreet Singh of Barclays said in a note on Tuesday, noting that “the situation in Libya is in some ways reminiscent of the rising geopolitical tensions in the Middle East, and fundamentals could move in the opposite direction to the risks that geopolitical developments entail for a long time.”