20 Jun

Libya’s Supply Outage Impacts Crude Oil Prices

WRITTEN BY Gordon Kristopher

Supply outage in Libya 

NOC (National Oil Corporation) is Libya’s state-owned oil company. On June 17, NOC said that militants attacked storage tanks at two key export terminals in Libya. The attack caused a decline in the crude oil storage capacity at the Ras Lanuf port by 400,000 barrels. Militant attacks started on June 14 at the Ras Lanuf and Es Sider oil ports.

The attacks led to a fire at the storage tanks. Earlier, NOC said that the crude oil production outage would be 240,000 bpd (barrels per day). However, NOC expects the crude oil production outage to be 400,000 bpd if the export terminals remain shut due to militant attacks.

The news of a supply outage supported oil prices on June 20. August WTI oil futures contracts rose 0.7% from the previous settlement in early morning trade on June 20.

Libya’s Supply Outage Impacts Crude Oil Prices

However, WTI oil futures contracts fell 1.2% to $64.90 per barrel on June 19. The iShares US Energy ETF (IYE) fell ~0.2% on the same day. The index is composed of US companies in the energy sector.

Pioneer Natural Resources (PXD), Schlumberger (SLB), Weatherford (WFT), and Occidental Petroleum (OXY) declined 2.4%, 2%, 1.8%, and 1.4%, respectively, on June 19. These stocks were among the top percentage losses in IYE’s portfolio during the same period. These stocks account for ~12% of IYE’s holdings.

Libya’s crude oil production 

According to the U.S. Energy Information Administration, Libya’s crude oil production fell by 15,000 bpd (barrels per day) to 990,000 bpd in May—compared to the previous month. However, Libya’s production was near a five-year high. The increase in Libya’s production coincided with the rise in Brent and WTI oil prices.

Brent and US oil prices have risen ~150% and ~148%, respectively, since February 11, 2016.

Libya and crude oil supply cuts 

Libya has been exempt from the current self-imposed supply cuts due to economic issues, militant attacks on the oil infrastructure, and unexpected production outages. Libya’s crude oil production averaged 384,000 bpd in 2016 and 817,000 bpd in 2017.

OPEC’s meeting is scheduled for June 22. A large increase in OPEC and Russia’s output by easing the supply cuts could pressure oil prices.

Impact  

Libya plans to increase its crude oil output in 2018 despite ongoing supply cuts mandated by OPEC. NOC plans to increase Libya’s crude oil production to more than 2 million barrels per day by 2022. An increase in Libya’s oil production could pressure crude oil prices. However, unexpected supply outages, like the one that has occurred since June 14, could support oil prices.

Read Traders Are Tracking OPEC’s Meeting on June 22 and How an Export Boost Could Affect US Natural Gas Prices for crude oil and natural gas updates.

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