Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19
Will Stock Market 2019 be like 1999? - 14th Feb 19
3 Charts That Scream “Don’t Buy Stocks” - 14th Feb 19
Capitalism Isn’t Bad, It’s Just Broken - 14th Feb 19
How To Find High-Yield Dividend Stocks That Are Safe - 14th Feb 19
Strategy Session - How This Stocks Bear Market Fits in With Markets of the Past - 14th Feb 19
Marijuana Stocks Ready for Another Massive Rally? - 14th Feb 19
Wage Day Advance And Why There is No Shame About It - 14th Feb 19
Will 2019 be the Year of the Big Breakout for Gold? - 13th Feb 19
Earth Overshoot Day Illustrates We are the Lemmings - 13th Feb 19
A Stock Market Rally With No Pullbacks. What’s Next for Stocks - 13th Feb 19
Where Is Gold’s Rally in Response to USD Weakness? - 13th Feb 19
US Tech Stock Sector Setting Up for A Momentum Breakout Move - 12th Feb 19
Key Support Levels for Gold Miners & Gold Juniors - 12th Feb 19
Socialist “Green New Deal” Points the Way to Hyperinflation - 12th Feb 19
Trump’s Quest to Undermine Multilateral Development Banks - 12th Feb 19
Sheffield B17 US Bomber Crash 75th Anniversary Fly-past on 22nd February 2019 Full Details - 12th Feb 19
The 2 Rules For Successful Trading - 12th Feb 19 -
Financial Sector Calls Gold ‘Shiny Poo.’ Are They Worried? - 11th Feb 19
Stocks Bouncing, but Will They Resume the Uptrend? - 11th Feb 19
EURO Crisis Set to Intensify: US Dollar Breakout Higher
Stock Market Correction Starting? - 10th Feb 19
Gold Stocks Gather Steam - 10th Feb 19
Are Gold Bulls Naively Optimistic? - 9th Feb 19
Gold, Silver Precious Metals Update - 9th Feb 19
The Wealthy Should Prepare to Be Soaked - 8th Feb 19
US Business Confidence Is Starting to Crack - 8th Feb 19
Top Myths and Facts about ULIP Plans - 8th Feb 19
A Major Stocks Bear Market in 2020? - 8th Feb 19
Gold Market Extremes Test Your Mettle - 8th Feb 19
The Venezuela Myth Keeping Us From Transforming Our Economy - 8th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

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.


© 2005-2019 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

6 Critical Money Making Rules