Prices tumble, but Libyan oil far from market
Monday, August 22, 2011
NEW YORK (AP) — It could be a year or more before Libya produces enough oil to start exporting it in large amounts again. But once the oil starts flowing, it should bring the price of gasoline down even further.
International oil prices fell Monday because of the prospect that those shipments will hit the market again.
The shipments stopped six months ago as the rebellion in Libya raged. The conflict damaged pipelines and fields and forced out foreign oil engineers who helped the nation export 1.5 million barrels of oil every day.
The prices of crude oil and gasoline were already falling sharply because of concerns that the slowing global economy will slow demand from drivers and businesses.
The ouster of Moammar Gadhafi would clear the way for a new government and a return to oil production. But bringing Libyan production to levels that make a difference will take months if not years, experts say.
“This isn’t going to lead to an overnight restart of Libyan oil exports,” says Jim Burkhard, managing director for global oil at IHS CERA, an industry research group.
In the meantime, Burkhard says, the world’s teetering economy will drive prices.
Since February, the loss of Libyan oil had driven up the price of Brent crude, which is traded in London. Brent crude is used to price much of the oil produced and sold abroad and sold to refineries on the U.S. East Coast.
On Monday, Brent crude fell 26 cents to $108.36 per barrel. It fell much further earlier in the day but rose as it became clear that it would take months for Libya to have an impact.
The price of U.S. benchmark oil, known as West Texas Intermediate, rose $1.86 to $84.12. Traders who play the international oil markets, anticipating that the price of Brent crude would keep falling, wanted more U.S. oil.
West Texas Intermediate is trading at about the same price as when the Libyan uprising began. It rose as high as $113.93 in April and fell as low as $79.30 in August.
Libya sits on the largest oil reserves in Africa. Before the uprising, it was the world’s 12th-largest exporter, mostly to Europe. Libyan exports were all but shut off in February as the unrest intensified and international oil companies evacuated workers.
Shokri Ghanem, the former chairman of Libya’s National Oil Company, said Libya could start producing oil within three to four months, according to Platts, an energy information service. Ghanem said it could take two years to restore production to pre-uprising levels.
“There is some damage to installations, and there is a problem with some wells that were not closed properly,” Ghanem told Platts.
Eni, the largest foreign oil producer in Libya, is not so optimistic. While it has sent some technicians back to the country to restart oil and natural gas operations, a company spokesman said restarting crude production could take a year or more.
Helima Croft, an analyst with Barclays Capital, compares Libya’s political situation to that of Iraq in 2003, after Saddam Hussein was toppled by American-led forces.
“Everyone thought that Iraq would be stable overnight, but instead we had an insurgency,” Croft says. “The oil was offline for years.”
Judith Dwarkin, chief energy economist at ITG Investment Research, expects Libya to return to full production slowly over two years. In the meantime, she expects the price of West Texas crude to stay between $80 and $90 a barrel, barring an unforeseen supply disruption or a global economic collapse.
Besides worries about the world economy, oil prices have fallen recently because Saudi Arabia has produced more oil and developed countries have released oil from strategic reserves to make up for the loss of Libyan crude.
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