Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15
Inflation, Central Banks, and Business Cycles - 18th Apr 15
Stock Market Correction May be Nearing End - 18th Apr 15
UK Housing Crisis, Immigration, Population Growth, Election Forecast 2015 - Video - 18th Apr 15
Q1 Corporate Earnings Risky for Stocks - 17th Apr 15
US Stock Market Getting Scarier by the Day - 17th Apr 15
Stock Market Watershed Day - 17th Apr 15
Gold Price Has “Hallmarks Of Market That Is Bottoming” - 17th Apr 15
Chinese Stock Market - Men Go Mad in Herds - 17th Apr 15
Two Stocks Offering Investors High Yields and Profits - 17th Apr 15
Gold Price Has “Hallmarks Of Market That Is Bottoming” - 17th Apr 15
Chinese Stock Market - Men Go Mad in Herds - 17th Apr 15
Two Stocks Offering Investors High Yields and Profits - 17th Apr 15
King Dollar Hurting Stock Market Corporate Earnings! - 17th Apr 15
Production Declines Hide Bigger Crude Oil Storage Issues - 17th Apr 15
Top Three Takeaways From Today’s OPEC Crude Oil Report… and How You Can Profit - 17th Apr 15
How to Profit from Australia's Healthiest Biotech Stocks - 17th Apr 15
What Is Really Driving Gold Price? - 17th Apr 15
Will Ever More Boomers Selling Retirement Assets Change Investment Prices For Decades? - 16th Apr 15
Won't Be Contagion with 'Grexit' Greece Euro-zone Exit - 16th Apr 15
Sharp Decline in USD/CAD and Its Consequences - 16th Apr 15
Blackstone is like Apple, Google, Hermes, Boeing - 16th Apr 15
The Most Dangerous Financial Headline I've Seen Since the 2008 Crisis - 16th Apr 15
Is Legal Tax Avoidance Extinct in the UK? - 16th Apr 15
Why Russia Will Send More Troops to Central Asia - 16th Apr 15
More Thoughts on the Current Crude Oil Market - 16th Apr 15
U.S. Treasury Secretary Warns Greek Exit Will Cause Enormous Disruption and Hardship - 16th Apr 15
The Hottest New Place to Find Stock Dividend Income in Q2/2015 - 15th Apr 15
How to Escape the Pensions Squeeze - 15th Apr 15
Water Crisis Game Changing Water Revolution - 15th Apr 15
The Drying of California - Corporate Farms Control of Water - 15th Apr 15
OPEC Going Broke, Dumping U.S. Dollars. Is That Good Or Bad? - 15th Apr 15
OPEC Just Confirmed It’s Losing the Oil War - 15th Apr 15
Four Uranium Companies Poised to Profit from the Growth of Nuclear Power - 15th Apr 15
Stock Investing Tread Softly… and Carry a Big Risk-Management Calculator - 15th Apr 15
Crude Oil Price Technical Outlook - 15th Apr 15
Important Bitcoin Price Action - 15th Apr 15
UK House Prices, Immigration, Population Growth and Election Forecast 2015 - 15th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Historic Bubble

Libya Oil Export Offline Indefinitely?

Commodities / Crude Oil Apr 03, 2011 - 09:19 AM GMT

By: Dian_L_Chu

Commodities

Best Financial Markets Analysis ArticleThere were some interesting developments coming out of Libya that It seems behind the scenes a transitional government is already being put in place, and contracts are being signed for the resumption and export of Oil to Libya`s trading partners.


Rebels Making Oil Deal

The finance minister for the Libyan opposition, a University of Washington lecturer Ali Tarhouni who returned to Libya nearly a month ago to help the opposition, told reporters that Libyan rebels have signed a deal with Qatar to market their crude oil abroad in exchange for food, medicine and fuel. In late March, Tarhoni also said the rebels, who were at the time in control of all the country's eastern oil facilities, expected to begin exporting crude "in less than a week".

Libyan Oil Offline For Years?

This suggests that much of the fear that Libya oil export could be offline for years or even ‘indefinitely’ seems to be somewhat hyperbole, and a bit of a red herring. It appears that the Qaddafi regime is crumbling according to information gleaned from the recent defection of Libyan Foreign Minister Moussa Koussa, and it could be only a matter of time before the unrest in Libya is resolved with the stepping down of Qaddafi.

Recent news also pointed to members of the Qaddafi regime were trying to negotiate a way out of their current predicament, once the no-fly zone was established. By the way, no-fly zone essentially means the oil assets are pretty safe from harm, while realistically, both sides were never going to harm the oil assets, as that is how all of their power is derived--no oil assets equates to no power in Libya.

Saudi’s New Light Sweet Blend

Then, if you look at the production level relative to the world’s, you’d realize Libya’s production is about 1.7 million barrels per day (bpd), accounting for less than 2% of the world’s 88 million bpd of oil. Out of the 1.7 million bpd, Europe is the Libya’s top crude customer with 11 countries importing about 1.1 million bpd, according to The Economist (See Chart).


So, even if in the unlikely event that Libyan oil is totally off the market for an extended period of time, the shortfall could easily either be made up by rising production from other oil producing regions or by substitutions.  For example, despite doubt that Saudi’s high sulphur, sour crude would be an adequate substitute for Libyan light sweet crude, Saudi Aramco has come up with a new light sweet blend, and just sold EU buyers around 2 million barrels to replace the disrupted Libyan barrels.

Sanctions Leakage

Furthermore, even though the United Nations specifically named state oil company the Libyan National Oil Corporation (NOC) in its list of entities whose assets are frozen, analysts have said eventually there might be some significant sanctions leakage.  After all, oil is a valuable commodity, and one way or the other, Libyan oil is going to find its way onto the market.

Given that Oil is a also fungible commodity, this essentially means more supply added to the total world oil market since the Saudi’s already covering 100% of the loss from Libya`s disruption, and this just serves as bonus supply on the world oil market.

Economics Trumps Politics

All of this eventually has let me to realize that the laws of free trade, mutually consistent interests, and economic survival transcends the politics and even political revolutions of individual countries. For the oil exporting countries, their main source of income is oil, and their sole survival is based upon financial means.

Regardless of who is in power in Libya, Gabon, Nigeria, or even in Saudi, oil is a means to an end for any government, and will be made available to the world market in the form of trade as it is the only way these governments could stay in power given that this is their sole source of revenue.

Free Trade Transcends Revolution

In short, there isn`t going to be much of a long-term or massive supply threat due to the democratization of the MENA (Middle East and North Africa) region. The world has a long and storied history of countries which undergo revolutions, governmental transitions, etc., and there remains a consistent record of their continual exchange of goods and services where it is in the best interest of all parties involved to continue trading relations.

Free trade is a concept that is bigger than individual governments, and even governments with divergent views on many issues throughout history still manage to agree on certain commonalities and conduct trade when based upon mutually beneficial interests, i.e., each side has something of value important to the other party and worthy of trade.

Fear, Speculation vs. Facts

So, the idea that Libyan oil is going to be locked in 100% and off the market for even six months is a bit of a red herring, and contradictory to the history of trade relations. Even the North Koreans have trading partners in the midst of numerous sanctions by the world community.

There is a lot of fear mongering, hyperbole, and exaggeration taking place right now in the oil market mostly on behalf of speculators with a vested interest in exploiting the current political upheavals in the MENA region in order to push up the price of Crude Oil, and make a lot of money.

Often times, they are just speculations with very little facts to support much of the claims being bandied about regarding legitimate supply shortages in the Oil market. It is tantamount to yelling fire in a crowded movie theatre, and in the end, the stampede could run over whoever started the fire screaming in the first place.  

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at http://www.econmatters.com/.

© 2011 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014