Analysis: Oil output stalls on Middle East supply disruptions

Libya

• Libya’s NOC declared a force-majeure over the weekend, following the LNA blocking ports in the Eastern region. In terms of the impact: the blockade would result in oil exports decreasing by 700k BPD and production by 800k BPD. If the blockades continue then the NOC have warned that Libya’s oil output could be cut to 72k BPD from 1.2mln BPD over the next few days, as only one port will remain open.


• These disruptions began as LNA’s Haftar blocked the export ports which he has control over in Libya, prompting the force-majeure. Additionally, Haftar ordered the closure of the Hamada-Zawiya pipeline which is used for both the El Sharara and El Feel oil fields; for reference, El Sharara’s production is typically around 300k BPD with El Feel’s at around 70k BPD.


• This follows on from weekend discussions in Berlin where, according to Politico, a number of countries have agreed to a document calling for the return towards the politico process as well as refraining from military intervention in the region; countries including Russia and Turkey. Talks around this are expected to continue over the next few days.


• In terms of the longer term impact, ING highlight that this level of disruption would be enough to move the oil market from a surplus to a deficit in Q1 and then to balance in Q2; which could have ramifications for the OPEC production cuts which are due to be discussed at the next meeting in March.

As a reminder, support in the region can broadly be outlined as follows:

• Haftar: Saudi Arabia, Egypt, UAE support, Russian mercenaries & France


• GNA (Libyan Government): Turkey & Italy


• For reference, the US currently hold a neutral stance regarding the Libyan conflict

Iraq

• Iraq temporarily stopped production at the Al Ahdab, 70k BPD, oil field following on from security guards preventing access to the field demanding permanent employment contracts. Additional reports note that the Badra, 50k BPD, field was at risk of being closed over the weekend; circa 150k BPD production.

Reaction

• WTI and Brent futures are firmer this morning and did spike to an overnight high of USD 59.77/bbl and USD 66.0/bbl; with gains of around USD 0.50/bbl at present. While the above news did prompt a significant jump in oil prices, it is nowhere near the scale of the moves seen around the Iranian tensions in the first week of the year or the attacks in Saudi last September. Possibly due to this being a more localised issue, and less likely to result in military intervention, on a significant scale, by the US or another Western power.

20 Jan 2020 - 09:03- EnergyEconomic Commentary- Source: Newsquawk