The escalation of fighting over Libya’s capital, Tripoli, is putting oil production and exports at risk. The price of crude oil soared to the highest level since October 2018, propelled by fears that supply shortages may hit European refiners.
Prices have spiked to $72 for Brent Crude and $64.04 for WTI after Libya’s Government of National Accord (GNA) announced operation “Volcano of Anger” on April 7., aimed to defend Triply from from Libyan National Army (LNA). Exports of crude oil from Iran and Venezuela have also dropped, compounding the problem.
Analysts keep a close eye on Libya, since oil production and exports have fluctuated greatly amid fighting close to the country’s major oil spots. Libya currently produces more than 1.2 million barrels a day, and of that “almost 350,000 barrels a day of oil supply is under immediate threat,” Platts Analytics said.
The biggest threat may come from a disruption in supplies from Zawaya, an oil terminal near Tripoli used for exports from the country’s largest oil field, Sharara, in the south.
History shows that military conflicts in Libya directly affect oil exports. In June supplies dropped by 800,000 barrels after General Haftar captured two of Libya’s eastern export terminals and shipments were suspended for weeks.
After years of fighting, Libya has no single government; separate powers control its eastern and western parts Haftar, a former supporter of Col. Muammar Gaddafi, the Libya’s leader deposed and killed in 2011, now leads the Libyan National Army, which controls eastern Libya while the west is controlled by the U.N.-supported Government of National Accord.
Critically important oil fields around the globe seem to be in peril as various conflicts flare up. In addition to Libya’s military conflict and shrinking oil output by OPEC+, Iranian and Venezuelan exports are declining amid U.S. sanctions.
“We’ve seen Venezuelan production fall off a cliff,” Dave Ernsberger, global head of energy at S&P Global Platts, told CNBC. “We’ve seen already inventories against the five-year average move into more bullish levels, so the fact that there might be a lack of Libyan supply to the market is potentially a bit of a shock right now.”
During the next meeting on June 25, 2019 OPEC+ members will have to decide whether to regulate oil supply by curbing oil production cuts or filling the budgets with extra oil revenues.