Libya’s oil output has plunged by at least a fifth as foreign companies have shut down production, running the risk of turning the political crisis in the Middle East into an oil crisis.
Oil prices surged on Tuesday after Eni of Italy and Repsol YPF of Spain, the largest oil producers in Libya, said they were shutting down output. Traders said two of the four oil ports in the country were also closed, and refineries have also been affected.
“I don’t know if anybody right now knows what is happening in Libya,” said Mr Naimi in Riyadh. “Whatever is happening in Libya, the disruption to oil markets has not happened. When we see a shortage in supply, we will rectify immediately.”
Saudi Arabia retains about 4m barrels a day of spare production capacity, which the kingdom could use to offset losses in Libya. Mr Naimi stressed that Riyadh had the ability to remedy any shortage of supply.
“We have done this so many times, responding to emerging crises,” Mr Naimi said, in reference to Saudi Arabia’s move to pump more oil during the first Gulf war in 1990-91, during the oil strike in Venezuela in late 2002, and in 2003 during the US invasion of Iraq. “We have enough credence to tell you that we will meet any shortage.” The International Energy Agency also controls large emergency stocks of oil, which could be released into the market to meet any shortage.
Oil prices pared some gains after Mr Naimi reassured the market, but Brent crude, the global benchmark, continued close to its highest level in two and a half years at $107 a barrel.
Repsol YPF said on Tuesday it had shut down the massive El Sharara oilfield, with around 250,000 barrels a day of production. Repsol operates the field but its share of production is just 35,000 b/d. The bulk of the rest will affect Libya’s state-owned National Oil Company. Germany’s Basf shut down a 100,000 b/d of production in Libya on Monday.
Eni also confirmed it has shut down “certain” oil and gas operations, without providing any more details. It said in a statement its installations had not suffered any damage.
The shutdowns bring the total volume lost so far to at least 350,000 b/d, or about 22 per cent of Libya’s production and equal to Greece’s demand. Executives said the losses could be higher if the undisclosed shutdowns from Eni were included. Libya pumped nearly 1.6m b/d last month, the IEA said.
Oil executives said shutdowns were set to increase, potentially bringing Libya’s oil sector to a complete halt, as the subcontractors needed to run the fields leave. “There is huge and unexpected political uncertainty in most parts of north Africa and the Middle East and this can be expected to support prices,” Ian Taylor, chief executive of Vitol, the world’s largest oil trading house, said.
“Further price rises can be possible,” he said at an industry event in London.
John Kerry, chairman of the US Senate foreign relations committee, called for oil companies to halt operations in Libya and suggested the US reimpose sanctions on Tripoli. “All American and international oil companies should immediately cease operations in Libya until violence against civilians ceases,” said Mr Kerry. He urged the Obama administration to consider reimposing crude oil sanctions lifted during the presidency of George W. Bush.
Additional reporting by Daniel Dombey in Washington and Jack Farchy in London