Libya’s state-owned Native Oil Corporation (NOC) declared force majeure on operations at its biggest oilfield late Monday night amid a stand-off with armed protesters, in the family way a loss of 315,000 barrels per day (bpd) for the OPEC member.
The protest group, known as the Fezzan Rage Movement, shut down the El Sharara oil scope in Libya’s impoverished southwest earlier this month with the help of security personnel the Petroleum Facilities Shield, a militia known for its clashes with the Islamic State. The movement of tribesmen is demanding better services, health sector sustenance, monetary stimulus for the southern region and better protection from the government, which it claims has marginalized those surviving in Libya’s south.
But while oil prices saw a slight rebound of about 2 percent one week ago on news of the shutdown, crude yield from the U.S. is so high it’s practically drowned out what would otherwise be a notable disruption in the oil market. Brent crude was deal at 58.54 at 2 p.m. London time on Tuesday, down 1.8 percent on the previous day.
“In terms of the impact on prices, at present it is tussling to overturn the prevailing bearish bias,” Stephen Brennock of PVM Oil Associates told CNBC on Tuesday. However, he noted, “any besides unexpected outages could inject some much needed bullish impetus into the oil complex.”
Oil prices have in the offing fallen some 30 percent since hitting year-highs in October on concerns of global oversupply and slowing required growth. The Energy Information Agency (EIA) projects U.S. shale oil output to top 8 million bpd by the year’s end and average a record 12.06 million bpd in 2019.
While the disaster does heighten geopolitical risk, said Ehsan Khoman, head of Middle East and North Africa probe at MUFG, “markets remained focused on the more structural concerns that U.S. oil production growth is well north of, and imagined to stay, above global demand growth heading into 2019.”
Libya’s NOC said that production at El Sharara order only restart after “alternative security arrangements,” the Monday statement said, without elaborating.
The North African mountains of 6.4 million has been struggling to rebuild its energy industry since its 2011 revolution that ousted longtime captain Moammar Gadhafi and the ensuing collapse in central power.
Exempt from OPEC’s supply cut agreements due to its civil clash, Libya was enjoying its highest output levels in five years in the latter half of 2018. Production reached 1.28 million bpd as come in in November, up from roughly 500,000 bpd the previous June.
But the latest supply disruption shouldn’t come as a surprise, regional analysts say, citing the catastrophe as a timely reminder that this fragile recovery shouldn’t be taken for granted.
“The truth of the matter is that the guaranty backdrop remains tense,” PVM’s Brennock said. Numerous armed factions still grapple for control and a cut of Libya’s oil cash in an environment where the internationally recognized government in the country’s west is ignored by a separate, yet powerful, independent government in its east. In September, IS militants affected the NOC headquarters in Tripoli, killing two people.
“Libya’s political landscape therefore remains deeply divided and the country sustains to be a tinderbox for conflict,” Brennock continued. “This is hardly conducive for a sustained recovery in oil production. In short, Libya residues a hotspot of uncertainty and conditions are ripe for further disruptions.”
Earlier this month NOC warned of “devastating consequences” of a drama shutdown to both the southern region and Libya’s economy as a whole, local newspaper the Libyan Observer reported. But it has as follows far refused to pay a “ransom” to the protesters, saying it would set a dangerous precedent to Libya’s many other armed groups and risk yet more oil production facilities.
“We have decided to close the oilfield in Ubari until our demands are materialized,” the Fezzan Fit Movement’s representatives said in a statement last week, referring to the area where the El Sharara field is located.
“If not, we command close El Feel oilfield as well. Our demands are on the tables of Libyan governments.” The nearby El Feel oilfield remains operational for now, with drama of about 70,000 bpd.