By Dave Anderson:
The Libyan civil war is taking a significant (1% or more) proportion of global oil production off the market. Reuters has the details from this morning:
The global oil industry is pinning down the volume of output lost in Libya, with current
outage estimates narrowing to around 800,000 barrels per day...The latest estimate figure came from Libya's National Oil
Corporation (NOC), which said the country's oil output has
fallen by almost half.The chief executive of Italy's ENI (ENI.MI: Quote), the key player
in Libya, said he thought two-thirds of Libyan oil and gas
output had been halted following turmoil in the country....Libya is a net exporter with domestic consumption estimated
at only around 270,000 bpd.
As of Monday, its crude oil shipments were at standstill.
Every oil producing nation that has marginal capacity that is available for the spot market, or any entity that has large stockpiles of physical oil inventory is profiting from the current instability. Oil has a short term elasticity of demand of roughly 0.1 which means a 1% drop in supply will see a 10% increase in price to rebalance the new supply and demand equations.
As long as instability is contained to a "manageable" level, it is in the interests of other oil producing entities (nation state and non-nation state actors) to encourage a certain degree of instability. This dynamic was in place in 2004 as the Sunni Arabs took down the Kirkuk to Ceyhan oil export system:
Some level of instability is extremely profitable to them, especially an instability that so far has not resulted in the destruction of any actual production or export ability. The importance of this realization is simple; the incentive to cooperate with the United States is low for these countries, and if Iraq and the rest of the Middle East begins to stabilize, there is some direct economic incentive beyond the clear national security incentive that Iran possesses, to help the insurgents in Iraq.
Does Russia or some other non-Arab oil exporter want a certain level of instability and are those entities willing to take overt steps to encourage sustained instability in Libya and elsewhere in order to profit?
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