Investors not fully pricing in Libya unrest risk to oil supplies

Investors have not priced in the risk of oil supply problems caused by fighting in Libya, according to analysts. Markets have instead concentrated too much on the disruptive possibilities of the US-China trade war and problems in Venezuela and the Middle East. The situation in Libya is said to have worsened recently after the Libyan National Army was ordered to march on the capital. The country’s National Oil Corporation has warned that hostilities are hampering its operations with threats to key infrastructure and security. It has already called for an immediate ceasefire.

The Sarir oilfield in Libya’s Sirte basin has seen its oil production drop by 30,000 bpd since June 9 when a fire broke out in a power generator due to high temperature, Libya’s National Oil Corporation (NOC) said on Tuesday.

The Sarir field, operated by NOC’s subsidiary Arabian Gulf Oil Company (AGOCO), is Libya’s largest oilfield with proven reserves of 4.8 billion barrels, according to the national oil company.

Current oil production at the Sarir oil field is around 155,000 bpd.

The fire started at the power station at the field and cut off electricity to parts of it, NOC said, adding that “An internal investigation is underway to determine the cause of the temperature rise and an estimated restart date post repair works.”

Yet, some operations at the field that had been suspended since May due to a technical issue have recently restarted, NOC said.

The technical difficulties at the field highlight the fragile state of the Libyan oil industry now that fighting between rival armies continues in and near the capital, Tripoli.

While the oil market is fixated on the U.S.-China trade war for signs of demand, and on Iran, Venezuela, and the Middle East for signs of more supply disruptions, investors have not fully priced in the increased risk that Libya’s fighting could result in a serious oil supply outage, analysts say.



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The security situation in Libya has materially worsened this spring after eastern strongman General Khalifa Haftar ordered in early April his Libyan National Army (LNA) to march on the capital Tripoli. The self-styled army has been clashing with troops of the UN-backed government in a renewed confrontation that could escalate and threaten to disrupt, once again, Libya’s oil production and exports.

“Protracted hostilities continue to hamper NOC operations and our ability to serve the Libyan people. Key infrastructure is being damaged and security eroded - allowing criminal elements to prosper,” NOC’s chairman Sanalla said in a statement last month.

“NOC will take all necessary measures to investigate and prosecute those committing crimes that undermine the oil sector and our ability to maintain operations. An immediate ceasefire is needed. The alternative is further escalation and destruction,” Sanalla said in May.

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By Tsvetana Paraskova for Oilprice.com

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