Oil prices received support from two events this week – the deadly attack against the US consulate in Benghazi, Libya; and the Fed announcing an open-ended QE program. Events in Libya remind us that supply risks persist beyond Iran. Tight OPEC spare capacity levels serve as a supportive backdrop for these supply risks. In recent months the oil market has been fixated on supply issues in Iran as US/EU sanctions disrupted crude oil exports. Libyan crude oil production, which had been disrupted in 2011 had recovered swiftly and appeared to be closing the gap with pre-conflict levels.
Libyan production as of August was at 1.4 mln bbl/day, up from zero in August 2011 and just 200kbd shy of 2010 average production, according to the latest IEA data.
That said, Bank never took Libya off its supply risk watch list given their concerns over the state of the political transition there and what we saw as the potential impact on current and future oil production in the North African country.
“This week’s events in Libya remind us that supply risks persist beyond Iran and Syria, which have been the focal point of geopolitical risks for the oil market. Let us not forget that oil production and exports in South Sudan remain offline amidst an ongoing border dispute with Sudan.” The report noted.
Tight OPEC spare capacity levels, namely Saudi spare capacity levels, serve as a supportive backdrop for these supply risks. The latest IEA data showed Saudi spare capacity holding under 2 mln bbl/day, with OPEC spare capacity as a whole at 3.4 mln bbl/day.
In our view, any demand or supply-side surprises could really test the kingdom’s ability to meet fresh global shortfalls.
Source: Deutsche Bank