World Oil Developments
Libya
Libyan oil is returning to global markets following the reopening of an Eastern port and an increase in production, an oil official said.
Returning supplies, even limited ones, from the North African country could bring relief to markets rattled by mounting fears of Iraqi disruptions.
Speaking to The Wall Street Journal, Mohammed el-Harari, a spokesman for state-owned National Oil Co. said a tanker with a capacity of 350,000 barrels destined for Europe is currently loading from the Eastern oil port of Hariga and a second will follow soon. He said the facility reopened over the weekend after protests by guards over wages arrears came to an end.
Last month, Libya was forced to divert its crude exports to a local refinery after dwindling oil flows led to a risk of fuel shortages.
Following the resumption of production at two fields, the country's oil production now stands at 208,000 barrels a day, Harari said. That is up from about 150,000 barrels a day previously, though it is still a fraction of normal output of 1.6 million barrels a day.
Libya's production and exports have been frequently shut by strikes and armed occupations since a civil war that toppled strongman Moammar Gadhafi in 2011.
The impact of the disruptions on global markets has been compounded by escalating unrest in Iraq, which normally exports 2.6 million barrels of oil a day.
Iraq
The safety of Iraq’s oil-producing capacity, and the global energy market as a whole, is under threat from the Islamic State of Iraq and the Levant (ISIL) insurgency.
Over the last fortnight, the ISIL has made jaw-dropping advances across Iraq. ISIL now holds large parts of the country’s central and northern regions, including Mosul, the second-biggest city, and Saddam Hussein’s home town of Tikrit.
Since splitting from al-Qaeda in 2011, ISIL has operated on both sides of the Syrian-Iraqi border. If the World Cup wasn’t on, and it wasn’t the height of summer, this militia group’s activities would be dominating our news agenda to a far greater extent than they are.
Perhaps the oil price will force us to confront what’s really happening in the Middle East. Brent crude hit almost $116 a barrel, its highest level since September 2013. Prices are up 10pc over the last fortnight, since this new insurgency kicked-off, with crude steadily approaching the $120-$125 danger zone.
At that level, oil starts to impose serious economic damage on the major energy importers. Over the last half century, pretty much every oil price spike has been followed, relatively quickly, by a recession in the Western world.
More recently, a related pattern has emerged. In 2011 and again in 2012, it was the rise of oil to around $125 that triggered a return to “risk off” and a significant downward correction of equity market.
The concern then was that a US air strike would cause massive upheaval, with fighting spreading from Syria, which produces a mere 56,000 barrels of oil daily, to Iraq, which back then pumped a very sizeable 3.1m — or 3.7pc of global production.
That’s exactly what has happened — even though the air strike was called off. Last year prices rose from around $108 to $117 and, so far, the current response has been roughly the same. In that sense, the market’s response to these Iraqi fireworks has been relatively subdued. One reason is that the oil exports from the region which has seen most of the fighting, northern Iraq, has anyway been offline since earlier this year, due to a damaged pipeline to Turkey. Those losses to global commodity markets were already priced in.
Earlier this year, Iraqi production hit a 35-year high of 3.6m barrels — up no less than 16pc on the year before. The country’s output is set to grow to no less than 5m barrels by 2019, according to the International Energy Agency, the Western world’s energy think tank.
“Given Iraq’s precarious political and security situation, this forecast is now laden with downside risk,” the IEA warned, in a report. “This [ISIL] offensive is not only raising concerns about future production from operating and new projects, but is casting a pall on the functioning of the country’s government institutions and even on regional stability”.
The exploitation of “tight” oil and gas formations has seen America’s total energy production recover to its seventies peak of 11.3bn barrels a day. Back then, though, the world economy was much smaller, and used a lot less energy. And the reason US energy prices are below those in Europe (particularly gas prices) isn’t because shale energy is cheap.
On the contrary, producing shale requires the drilling of many more wells than conventional production. American energy prices are low due to a combination of massive shale-focused tax breaks and a near blanket energy export ban – which has produced a glut. Again, shale is important, but it won’t redraw the global energy map.
This new threat to Iraqi oil supplies is set against an alarming trend barely mentioned by Western analysts. Last year, the global oil industry discovered just 13,000m barrels of oil, a third less than in 2012 and the lowest discovery rate in 62 years.