London, United Kingdom”•Libya’s almost total retreat from the world oil market as unrest blocks its vital terminals, is helping OPEC meet production cuts, analysts say.
But a dramatic drop in output by a member of the Organization of Petroleum Exporting Countries has not propped up crude oil prices, owing to a big fall in demand by China owing to the new coronavirus.
Libyan oil output has slumped since January 18, when forces loyal to military strongman Khalifa Haftar blocked exports from the country’s main ports. Oil is the North African nation’s main source of income.
The blockade on the eve of an international summit aimed at bringing peace to the Libya came after Turkey sent troops to back up Fayez al-Sarraj, who is Haftar’s rival and head of Tripoli’s UN-recognized government.
The UN said Monday however that Libya’s warring sides had proposed a draft ceasefire agreement.
Libya produces about 120,000 oil barrels per day, according to the country’s National Oil Corp.
Yet the NOC and OPEC had reported output at around 10 times that level before the blockade. At roughly 1.2 million barrels per day, that represented about four percent of the cartel’s total production and one percent of world supplies.
“Given the geographical proximity, traditional Libyan crude oil buyers are Spain, Italy, France and Germany”•with some volume going as far as China and South Korea depending on the actual price,” noted Tamas Varga, analyst at oil brokers PVM.
While Libya’s slashed output was estimated by the NOC to have cost the nation more than $1.85 billion, its effect on global prices has been minimal, barely helping to limit heavy losses triggered by the coronavirus.
Benchmark contracts Brent North Sea and New York’s West Texas Intermediate on Monday slumped close to five percent on fears of a potential pandemic that could slash world oil demand.
The Libyan crisis has not wiped out a global glut of oil driven by ample US supplies and weak demand.
“Libya has lost around 1.0 million barrels per day of production and is suffering from heavy financial losses on a daily basis,” said Varga.
“This, however, does not cause a major headache in the oil market as it is pre-occupied by the bearish implications of the coronavirus.”
Libya’s absence from the oil market is still seen as a gain for OPEC however, as it helps the cartel meet output cuts agreed with key non-member Russia.
“While Libya is exempted from the OPEC+ cut agreement, the current crisis there does make the group’s job to rein in supply in the face of the coronavirus easier,” noted Jasper Lawler, head of research at trading group LCG.
OPEC earlier this month lowered its forecast for growth in global oil demand this year by nearly one fifth owing to the virus outbreak.
In December, OPEC and its allies extended an existing agreement to curb crude oil production to prop up prices.
“OPEC’s job will be made even more complicated in case Libya… ramps its output up again some time in the future,” Varga remarked.
“Accommodating these barrels will cause additional headache.”
