Unrest in Libya has raised supply worries fuelling oil prices while progress in settling the dispute over Tehran’s nuclear programme has raised traders’ hopes that more Iranian oil will come back to the market if it follows through on its commitments. On 29 November, Brent futures held near $111 a barrel.
The situation in Libya is apparently getting worse. More than 40 people were killed in an explosion at an army depot in the south of the unstable country after locals tried to steal ammunition.
“The outlook of oil production and exports from Libya goes up and down but is generally negative. Especially in the last two-three weeks it has become pessimistic and worrisome,” Manouchehr Takin, Senior Petroleum Upstream Analyst with the Centre for Global Energy Studies (CGES) in London, told New Europe on 29 November. “After the revolution, oil production begun to go up but then the situation became insecure, problems arose and the actual production coming out has been very low - sometimes a few hundred thousand barrels a day,” he said.
The recent clashes highlight the Libyan government’s inability to restore order, deterring new investors. “They don’t know with whom they’re negotiating because of what’s happening in different sectors, like in Benghazi,” Takin said. “It’s becoming like Iraq where in the Kurdish region the companies begun to make deals and the central government in Iraq is saying they’re illegal. But because the price is so good we have had not only small companies but also Exxon and other big companies going to the Kurdistan regional government. But Libya is not that. It’s armed groups who do not answer to the central government and they come and go. It’s very volatile and people are worried,” the CGES analyst said.
Takin said the companies which have already invested in Libya and have been producing for many decades are carefully monitoring the situation and are trying to take their own staff out.
Prolonged conflict in Libya since civil war ended in 2011 has curtailed the country’s oil and natural gas production. On 25 November, Wintershall reportedly said that due to the protracted blockade of the export terminals at the coast, the German energy company has had to suspend its onshore production several weeks ago already. Austrian energy company OMV said on 20 November that its oil production in Libya has been interrupted for nearly a month.
Meanwhile in Iran, United Nations inspectors were invited to visit a nuclear-related heavy water facility, marking an initial concrete step towards resolving the dispute. “Physically the export of Iranian oil has not increased yet,” Takin said. “It would take a long time, many months before the actual supply from Iran would increase. But it did affect the market it went down by more than $2 and then it went up again,” he said, referring to the news of a breakthrough in negotiations on 24 November. Weak demand may also drive oil prices down. But Takin noted that if prices fall significantly, the Organisation of Petroleum Exporting Countries (OPEC) and especially Saudi Arabia, which has been pumping very high volumes to keep the market well supplied, will step in and may start to cut output to defend prices.
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