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Thursday, February 24, 2011

Libya shutdowns send oil soaring

(FT) -- Oil prices surged by more than $6 a barrel as violence in Libya knocked out at least half the country's production, according to industry executives.
Brent oil futures, the global pricing benchmark, jumped 5 per cent to more than $111 a barrel -- a 2½-year peak, while Nymex West Texas Intermediate, the US benchmark, hit $100 a barrel for the first time since October 2008, before falling back to $98. "It is increasingly looking as if this is the real deal in terms of a supply shock," said JBC Energy, a Vienna-based consultancy.
Executives estimated that at least half of Libya's 1.6m barrels a day oil output had been shut down, although they cautioned that they did not have direct knowledge of production at their competitors' oilfields.
Amrita Sen, energy analyst at Barclays Capital, said: "The overall significance of the situation is more than just about lost barrels. Destabilisation in the Arab world, home to the world's largest oil and gas reserves and production, is of extreme significance."
Producers' cartel Opec has said it stands ready to supply the market in case of a shortage.
However, analysts warned that Opec's spare capacity was of lower quality than Libyan crude, suggesting that members of the International Energy Agency, the consumer countries' watchdog, might instead agree to release strategic stocks.
Lawrence Eagles, head of oil research at JPMorgan and a former head of oil markets at the IEA, said: "Without information on the scale and duration of any disruption, Opec cannot accurately gauge how much additional crude to produce. A release [of] stocks by the IEA may meet market needs more closely."
The subject is likely to arise at a regular two-day board meeting to be held by the IEA on Thursday and Friday.
But the agency said: "At present, we are not in a situation where [releasing oil from stocks] is necessary."
Industry executives warned that the effect of the disruptions in Libya could be felt for several months -- even if a semblance of peace were to return to the country.
"If the disruption lasts more than three weeks, the recovery will take time because pressure will be lost," one said.
According to traders, Libya's national oil company has declared force majeure -- a legal clause allowing it to walk away from contracted deliveries -- on refined products. They add that western oil majors could do the same on their contracted deliveries of crude oil within days.
Spain's Repsol and Germany's Wintershall have publicly announced that they have shut down production in Libya, estimated to be 350,000 b/d and 100,000 b/d respectively.
In addition, traders and industry executives said production had ceased at certain fields operated by Total of France and Italy's Eni, equal to a further 300,000-350,000 b/d.
The companies confirmed that there had been some impact on their oil output, without giving details.
The extent of production losses at oilfields operated by Libya's national oil company was unclear.
Ms Sen estimated that as much as 1m b/d may have been shut down -- more than 60 per cent of Libya's total production.
The rest of the country's output was "increasingly under threat", she added.


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