- Low Demand, Increased Supply Conspire To Push Crude Prices Lower
- Libya May Be Focus Of Major Rift Between US And Regional Allies
Libya's decision to shut down its most productive oil field after a rocket attack on a related refinery has cut the North African nation's output by nearly 30 percent and helped boost sagging global oil prices.
Mansur Abdallah, the director of oil shipments at the damaged refinery, told Bloomberg News that the Sharara field had been producing about 250,000 barrels of oil per day before the Sept. 15 attack. Libya had been producing about 870,000 barrels of oil per day before that, according to National Oil Corp. spokesman Mohamed Elharari.
The refinery is in Zawiya, on Libya's coast along the Bay of Sidra, roughly 25 miles west of Tripoli. It is connected by an oil pipeline to Sharara, about 450 miles to the south. Elharari said one of several militias involved in Libya's civil war fired a rocket that exploded near a crude oil storage tank near the refinery.
Operations at Zawiya and extraction at Sharara were at first merely reduced, but on Sept. 18 they shut down altogether and will stay closed as long as clashes in the area persist, Abdallah said.
The production cut demonstrates that Libya can't indefinitely ignore the civil war that's been raging for the past year and which has seen rebels blockade oil ports along the country's northeast Mediterranean coast. The blockade was lifted in July, and oil production and exports resumed.
Still, the shutdown at Zawiya and Sharara illustrate that Libya "remains in a state of civil war, where anything can happen," Andrey Kryuchenkov, and analyst at VTB Capital in London, told Bloomberg.
Oil prices lately have dropped because of lower demand and high levels of production, even in conflict zones such as Iraq and Libya.
The price of oil rose slightly on Sept. 16 after Russia hinted it might deploy troops in Crimea, which it annexed from Ukraine in March, in response to NATO military exercises in Ukraine near the Polish border.
Prices also were bolstered when OPEC Secretary General Abdallah El-Badri predicted that the cartel would cut oil output to 29.5 million barrels per day from 30 million barrels per day at its scheduled meeting in late November.
As a result, the fighting around the Zawiya refinery is good news for the oil industry, according to Phil Flynn, an analyst at Price Futures Group in Chicago.
"The talk of OPEC reducing production has given us a boost [in oil prices]," Flynn told Reuters, "and the Libya news is important because the market was expecting the recovery of that country's exports to continue."
By Andy Tully of Oilprice.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.