The crisis in Libya, the world’s 12th largest oil exporter, has resulted in severe disruptions to oil production and driven the nation’s exports to a halt.
Although Libya accounts for only a small percentage of total global supplies, the oil it produces is of particularly high quality. The majority of Libya’s exports go to Europe, which has been hit hard as a result of this upheaval. The International Energy Agency (IEA) has estimated that between 500,000 barrels per day (bpd) and 750,000 bpd have been removed from the market as a result of the Libyan crisis.
Saudi Arabia has responded to cover supply losses by increasing its output by 8% to over 9 million bpd. Saudi oil, however, is of lower quality than Libya’s and thus is not an exact replacement for all refiners. The IEA notes that most European refiners have covered all their oil needs through next month, and there is no fear of an immediate supply shortage.
Nevertheless, anxious investors pushed oil to near-record trading prices this week, with Brent oil up to nearly US$120 a barrel on Thursday, the highest level seen since July of 2008. Prices have come down since then, but we continue to expect heightened volatility in the market as the political turmoil continues in the Middle East. Read more…