For months, the Middle East has gotten a lot of attention in the oil market. But on Monday, news came out that Libya’s eastern government had stopped exporting crude oil and making oil from the country’s oil fields, which turned attention to North Africa.
He told BourseWatch, “Against a background of geopolitical risk, Libya is costing us real barrels—barrels of light-sweet crude that, at this time, cannot be easily replaced.” Flynn is a senior market analyst at the Price Futures Group.
‘Libya is costing us real barrels — barrels of light-sweet crude that, at this time, cannot be easily replaced.’
Phil Flynn, The Price Futures Group
Reports say that on Monday, the eastern government of Libya, which is backed by dictator Kahlifa Haftar, who is in charge of the Libyan National Army, shut down all the oil fields it controls. This means that crude oil production and exports will stop until further notice.
Agence France-Presse said that most of the country’s oil areas are controlled by the eastern government, which is based in Benghazi. Bloomberg said Monday that the move was made because of a disagreement with the officially recognised western government in Tripoli over who should run the country’s central bank.
Matt Smith, head analyst for the U.S. at Kpler, said, “Because Libya exports so much, the effect on exports should show up quickly in real-time data.” Libya has about 25 million barrels of oil on land, and they may start to use some of that. But Smith said that if they stopped, “exports would start to shrink in the coming days.”
News reports say that the National Oil Corporation, which is in charge of Libya’s oil supplies, has not confirmed that the oil fields have been shut down.
An organisation called the Organisation of the Petroleum Exporting Countries says that Libya made and sent out 1.191 million barrels of oil every day in 2023. About 79% of the world’s known crude oil reserves are in OPEC member countries. In 2023, Libya had 48.36 billion barrels, or 3.9%, of the group’s proven crude oil reserves.
An independent energy expert and managing partner at Energy Outlook Advisors named Anas Alhajji said that the eastern government wants to change how oil revenues are split and take back the decision to fire the head of the Libyan central bank.
“Losing some exports won’t have a big effect.” “But losing all of Libya’s exports will have a big effect on the world’s oil markets,” he told clients.
“The loss of Libyan oil has effects on both quantity and quality,” Alhajji said, adding that this could change the price difference between light and heavy oil. He pointed out that most Libyan crude is sent to plants in Europe.
Libya mostly sends out light-sweet crude oil, which has less sulphur and is easier to turn into petrol.
Kpler showed a graph of Libya’s yearly oil and gas exports by location, showing how many thousands of barrels of oil and gas were sent each day:
Europe is the main market for Libyan barrels, and it has become “increasingly so in recent years.” This year, 85% of exports went to Europe, according to Kpler’s Smith.
He also said that U.S. crude is “likely to be the biggest winner here” because European buyers will turn to light, sweet U.S. shale oil to replace the supply they lost from Libya.
Smith said, “This explains why WTI is rising so much today, beating Brent.”
WTI crude for October delivery CL.1 -0.52% CLV24 -0.50% went up $2.59, or 3.5%, to settle at $77.42 a barrel on the New York Mercantile Exchange on Monday. The global standard for Brent for delivery in October BRN00 -0.44% As of the end of the day, BRNV24 -0.50% was worth $81.43 a barrel, up $2.41, or almost 3.1%.
In 2020, Haftar, who was in charge of the Libyan National Army, blocked Libya’s oil facilities for eight months because he didn’t agree on who should lead the country.
Smith said the blockade “worked,” showing that Haftar could control the country’s oil business by making it hard to produce and export goods.
Alhajji said, “What makes the situation hard is that the U.S., which makes the most light-sweet crude, is buying it from Libya.” He said it was because of the Jones Act, which says that goods sent between U.S. ports must be carried on ships built and manned in the U.S.
He said that the “loss of Libyan oil now will have a bigger impact than in the past.”
