Oil Drops on Libyan Deal

Libyan rebels came to an agreement with the central government in Tripoli, allowing the country to resume oil exports out of two ports. Libyan rebels demanding greater regional autonomy had controlled several ports in eastern Libya, blocking the export of crude that makes up such a dominant share of the government’s revenue. After the U.S. navy captured a ship full of rebel-exported oil a few weeks back, the rebels took a more conciliatory tone and decided to negotiate with the government.

As part of the deal, the rebels handed over control of two oil terminals – Hariga and Zueitina – on April 7. They have promised to give up two more terminals in the coming two to four weeks, according to a spokesman for the group.

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Markets reacted to the news and Brent prices were down in early trading on April 7. Libya’s oil production had dropped to 150,000 barrels per day in March, down 80% over the last 8 months, and so a return of Libyan capacity will add to global supplies. The Hariga port has an export capacity of 110,000 bpd and Zueitina exports 70,000 bpd. The rebels maintain control of two larger ports – Es Sider (340,000 bpd) and Ras Lanuf (220,000 bpd) – but have promised to return them to government control in the coming weeks. “It's a goodwill gesture on our part to prove that talking and negotiating is the only way to resolve Libyan problems without interference from the West and from others and without the use of force or threats,” the leader of the rebels, Ibrahim Jathran, said of the deal.

In return the rebels have secured a commitment from the government to pay compensation to the rebels and drop charges against them. The government has also revoked a threat of a military offensive against the rebels.

By Charles Kennedy of Oilprice.com