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Red Herring: Libya Oil Exports Offline Indefinitely?
By Dian L. Chu, EconMatters
There 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 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 yelling of fire in the first place.
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Right. So why are we so worried about little-producing Libya when we have all those corn fields producing ethanol?
Just follow the yellow brick road and don't ask about the man behind the curtain.
I'm waiting for the U.S. to go the synfuels route. In both Nazi Germany and Apartheid South Africa, it marked the beginning of the end for pariah regimes.
Libya will be solved by May... However, it is not the last nor the biggest supply disruption this year. More to come in MENA, Iran this year:
http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&start=0#p30486
Short, are we? Unless Ben steps up and take the punch bowl away I am happy to take the other side - I suspect oil will eventually force his hands the question is where his pain threshold is.
Whoever wins (the whole MENA affair) is gonna be fed up with the Anglo-American, Banking, New World Order, whathefuckever one wants to call it and demand additional funds for reconstruction, development and largess (aka bread and circuses) to keep the proletariat compliant. Nothing changes.
They will be raising the price of oil, with worldly excuses and permission.
The higher the price of oil, the greater the excuses of TPTB for increased control, interference, media manipulation, curtailment of freedoms... gotta keep their proletariat in line, as well.
Nothing changes.
Except the price of oil goes up.
"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."
Crazy despot, the rabble wants him dead, and it only takes a handful of loyalists to infiltrate and destroy an oil facility which he may no longer view as recoverable...
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.
Straight of Hormuz, smaller shooting gallery and the Iranians have bigger guns...
The person who makes the decision whether to pull the trigger or launch the missle is rarely an economist.
Hell, you need to park all that cash that the Fed is handing out somewhere. Banks don't really need an excuse to run up the hell out of commodities. MSM can come up with almost any reason why oil is still going up. Remeber 2008? It was those dastardly oil companies and their shenanigans.
On just about every level, Chu has no idea about this subject. There is just too much wrong with this to even bother writing a real response. My suggestion to Chu: either go spend some time reading at the oil drum(a lot of time); or, find another subject to write about.
The statement that "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" is totally false, and it's irresponsible to make these claims.
Where exactly can a similar very high quality oil be found to replace that lost from Libya? It's been more than a month since Libya completely shut down its oil exports. Since then Saudi Arabia has perhaps provided an additional 300,000 bpd of exports, and its so called new blend of high quality oil has yet to be shipped. In other words Saudi Arabia has made up zero of that lost from Libya. It doesn't appear that OPEC has taken these 'easy' steps to replace lost oil from Libya. Are they really under any obligation to do so anyway?
Keep in mind, Libya is a net importer of oil products (diesel and gasoline) so to get that country restarted they will have to supply the oil first to Europe before southern European refiners can ship it back as a product. To get the oil industry restarted, all the domestic and foreign workers that left will have to feel comfortable about working again in Libya. This is a kind of Catch-22 situation that will make it difficult to restart things there.
Go to TheDailyBell.com for an article by Anthony Wyle that explains why Libya is merely a part of the NWO agenda. No longer a conspiracy theory folks.
Good reading ap,
That led to the Jim Rogers article.
In the interview, he states that Bernanke and the IMF are not smart enough to be involved with the NWO push.
He also declares it a conspiracy.
I'd guess that a NWO system would be more difficult for him.
Somewhat disappointing post from Chu, whose $90 call of 2 days ago generated a price increase in both WTI and Brent.
VBut perhaps the most disappointing issue is the quote of 88 mbpd.
This is not oil. This is "all liquids". Some is butane or propane and they don't fuel jet engines or 18 wheel trucks or, particularly, 450 horsepower agricultural tractors.
Oil is no longer a subject that can be understood without a physics and/or geology background. Physics doesn't care about economics. There was a time when higher price generated higher flow rates from the pipes out of the ground, but the finite nature of reality has changed all that. Now what matters is energy content of the liquid, and Crude + Condensate has more energy in it than butane.
The C+C numbers are 75 mbpd, 13 mbpd less. The Libyans get that light, sweet output from the ground almost effortlessly (which is why Oil India and PetroChina can replace BP and Total and Eni and Suncor in the production contracts). The alleged Saudi light sweet blend is not effortless and they will have to be paid for that effort. Meaning, obviously, that its arrival (if it actually does arrive) on the marketplace might not touch price, particularly.
Perhaps most powerfully of all, every day Libya is offline is another day of old fields dying. As they die, the down escalator gets steeper for the restored sprinter headed up.
In the final analysis, the price isn't going to matter. We will likely see some shortages in the US later this year.
Exactly, supply not price is the overriding issue.
The U.S. and most developed and developing nations can never worry too much about assuring a continuing (uninterrupted) supply of oil that is the foundation for their economy and daily sustenance. What is worse...1) an alleged "red herring" that forces a nation like the U.S. to reexamine its assumptions and plans for continuing supply of oil, ...or 2) a cavalier Chu-complacent attitude?
I understand you are bearish on oil. But there are few points I do not quite get.
You assume 1.7 Million barrels per day can "easily" be made up. You are assuming there are producers there, NOC or otherwise, that are holding back. That is plain BS IMO. Not at this price. Not at $80.
Second, you spoke amount demand destruction in your last article. Are you aware of the current studies on the elasticity of oil demand? 1.7 Million barrels per day may require close to a $40 rise in the price of oil assuming the market was balanced prior to it.
And finally why would anyone speak of 2 million barrels (a one time deal) versus the loss of 1.7 million barrels per DAY.
On a related note, I read a lot of articles some saying the world has hit peak oil production and others saying such claims and in even the "theory" of peak oil is ridiculous.
Interestingly I see far more written about the limits of oil production than on it's infinite supply. But it seems to me that since 2004 the price of oil has been steadily increasing dispite some predictions that the price would collapse and stay low. Now $75-$100/ barrel oil is the new normal and some say there is no supply issues. Some say there's plenty of oil out there but all that is needed is more investment. Could it be that producers having seen that the world will pay high prices are in no rush to bring enough oil to market to bring down the price?
It seems there are so many factors that go into the price of oil that it's impossible to figure out all the reasons that oil is so expensive, however, one thing that makes me believe we have hit (or nearly hit) peak oil is that extended high prices risk collapsing demand and bringing the price way down as we saw in 2008. So why wouldn't producers do more to bring enough oil to market to achieve a sustainable price level of around $80?
You pray at the altar of free enterprise god. Have you forgotten the 70's middle east oil embargo? The people in middle east are mad because the west has stolen their black gold through dictators or more accurately, puppets of the west. You also have the Israel issue that will create more chaos than before. Your following comments demonstrate an ignorant myopic focus of the world...
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...... 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) 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.
You nor I can predict the future, but the elements involved are far more complicated than you propose.
But certainly as the country kicks out Gadhaffi, wont the citizens demand that their oil be used for consumption in their own country? That's the risk here to the rest of the world. Same shit going on in Saudi Arabia; their own populations are rapidly accelerating their use as well. Leaving far less available for export.
all of the islamic countries should be on the food for oil program to prevent the funding of tyranny.
http://covert2.wordpress.com
Yeah, food for oil in violent Islamic countries. We can let the UN run it. It worked so well in Iraq.
Get over any illusion that the world will ever be peaceful until Islam fades away or the world is one big happy caliphate.
Oil fuels radical Islam.
Or.. maybe cold fusion or the invention of the warp drive will obviate the need for oil and we can just dispense with them altogether.
...so we should invade them?
I'm waiting for a Caliphate to happen in MENA. It's in a position to do so with a couple more governments being pushed around. If a Caliphate happens, we can all kiss the concept of a new world order a pipe dream and the power resting in the zone where the world draws it's oil.
Every Arab government in the middle east pre- and post-revolution exists at the whim of the USA.
If a Caliphate were to form and TRY to cut the west off from it's oil...kiss that Caliphate goodbye. WWIII would be the last crusade...the end of Islam as a force. We'd just take that area back like we did after beating the Ottomans. I'm sure many are HOPING the Muzzies try some shit like that. We sure could do without paying them for it.
It's "free money" for us as it is...remember every barrel creates $100...that's almost $9 billion each and every day. Because every barrel is priced in dollars. They have to get dollars to buy oil. Actually, taking control of the ME oil IS their plan...the way to kick the can down the road a bit more.