Libya's Oil Supply Improves

Oil prices have started 2014 heading south following news out of Libya of progress in the dispute between the government and regional protesters.

The price on Brent Crude oil dropped more than USD1.5/bl following an announcement that the Al Sharara oil field will restart production.

A further normalisation in the situation in Libya could send oil prices further down.

Production at Al Sharara to restart – oil prices drop
It was announced earlier today that the protests at the Al Sharara oil field near Tripoli, which have been ongoing since last October, have now been suspended for two weeks and that workers are ready to resume production. The Al Sharara oil field has a production capacity of 300.000b/d.

The announcement follows news on progress in the negotiations between the government and regional protesters regarding a reopening of oil ports in the central and eastern part of Libya.

Hence, the situation in Libya seems to be improving, although the government has yet to reach an agreement with regional protesters that will allow a full reopening of Libya’s oil ports and a return to full production. The price of Brent Crude oil has dropped more than USD1.5/bl today from around USD111/bl before the news release.

Regional protests have hurt Libyan oil production
Since July last year, Libya’s oil industry has struggled amid regional protests that have shut down a number of the country’s major oil ports. This has led to a sharp cut in Libya’s oil production over the period. Libya is currently only producing around 200.000b/d compared with around 1.400.000m/b before the rise of the protests.

Therefore, it would be good news for Libyan oil production if the regional protesters and the government are closer to reaching an agreement, as it would mean that Libya would be able to resume full production and the export of oil. Libya holds the largest oil reserves among African oil producers.

A return to full capacity is likely to take some time
It is positive for Libyan, as well as global, oil supply that the Libyan unrest is moving closer to a settlement; however, it is obviously negative for oil prices. Oil prices are likely to take an additional hit should the situation normalise further, although there are still many steps ahead before the situation will return to normal.

However, if and when the Libyan government and regional protesters come to an agreement, oil production will not return to full capacity overnight. A case in point is the recovery in Libya’s oil production following the 2011 civil war. In 2011, Libya’s oil production experienced a similar blow following the unset of the civil war and it took close to a year from oil production having bottomed before it was back on top again.

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