Libya may be a game changer on the oil market

Oil prices dropped in the last two weeks, as Libya announced that it will open all export terminals and OPEC experts announced that oil supply in Iraq was only slightly affected by the fights in northern part of the country. What is more it’s hardly possible that the violence can spread further, as the Iraqi army is much better equipped than a month ago. That is why we expect that all investors’ eyes in the next month will be focused on the revival of oil sector in Libya.

Libya produces now only 0,3 mb/d of oil, while its production capacity stays at 1,6 mb/d. However, according to the governments official the country can reach 1,0 mb/d of oil output level even in 3 months time. After the agreement with rebels all oil fields and oil terminals are now under the control of the government in Tripoli. That is a great news for oil market bears. In our opinion additional 0,7-1,0 mb/d from Libya in the second half of 2014 may reduce global oil deficit in the third quarter and push the market into an oversupply in the fourth quarter.

Conclusions

We maintain our 100 USD/b forecast for Brent oil prices. Oil from Libya is expected to be a major game changer on the market in the medium term. What is more, if Iran and the US government come back to the negotiations about sanctions, the fourth quarter rise in global oil supply may be even higher than now anticipated (it may even push Brent oil prices below 100 USD).