Libya’s National Oil Corporation (NOC) announced a political breakthrough a few days ago, promising to ramp up production and exports of long-disrupted oil supplies. The NOC said that exports could jump from 300,000 barrels per day to 900,000 barrels per day by the end of the year. If that came to pass it would be very bearish for international oil prices.
But very few people are buying such a scenario. Bloomberg surveyed six oil traders and found zero confidence in a return of Libyan oil from their responses. Three of the six traders said no new shipments would leave Libya’s newly opened ports in the next few months. Two others said the deal would break down. And the last said that even if some new exports started up, it would be in trivial amounts.
Citigroup backed up that sentiment in an August 2 report, calling the new announcement from Libya’s NOC just “another headfake.” Libya has promised several times to bring oil back, issuing declarations that oil ports would open and exports would resume. But there isn’t a single political entity that has the sway to make all of the country’s parts move in the same direction. Libya “has devolved into a genuine failed state, run by competing militias, and moving a state from the failed to the not failed column does not happen overnight or over months. It takes years,” Citi analysts wrote. Related: Pioneer’s $2 Operating Costs: Fact Or Fiction?
That means that the promised return of 600,000 barrels per day from the North African OPEC member before the end 2016 probably won’t happen. Along with the outages in Nigeria, which Citi expects to persist, the supply disruptions that helped spur the oil price rally in the second quarter could remain in effect for quite some time. That provides a glimmer of hope for a rebound in oil prices.
Oil markets are still oversupplied and suffering from record levels of inventories, a glut of refined products and crude oil that have pushed oil into bear market territory once again. These factors will weigh on oil prices, Citi says, “[b]ut oil at $40 a barrel is likely to spur investor, commercial and physical demand.”
By Charles Kennedy of Oilprice.com
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