Arab Today, arab today uncertainty drives up oil prices
Last Updated : GMT 09:41:15
Arab Today, arab today
Arab Today, arab today

Unrest halting oil shipments

Uncertainty drives up oil prices

Arab Today, arab today

Arab Today, arab today Uncertainty drives up oil prices

A rebel militiaman stands guard at a Libyan oil refinery
Tripoli - Arabstoday

A rebel militiaman stands guard at a Libyan oil refinery Just when oil markets appeared to be calming, crude oil prices surged again on Tuesday as the potential for more

oil shipment disruptions spread across the Middle East and North Africa. With Libya’s oil exports almost entirely halted for the last several days, renewed unrest in Oman, Iran and Iraq rattled oil traders. An interruption of shipments from any of those countries would further tighten oil supplies, even as Saudi Arabia has rushed to fill the vacuum of Libyan supplies by pumping more oil from its fields. The worries about the oil supply rippled through other markets, with stock markets turning lower on concerns that the higher cost of energy would slow economic recovery. Gold prices also surged on the latest reports, and indexes on Wall Street declined sharply, with the Dow Jones industrial average down more than 1.3 percent. The Saudi Arabian benchmark stock index fell 6.8 percent. In the latest sign that the political contagion was spreading, demonstrators in Oman on Tuesday tried to block a major road leading to the industrial port town of Sohar. Protesters in recent days have set fire to at least one police station and two government office buildings in the normally stable Persian Gulf country, which is ruled by a family dynasty and is the largest non-OPEC oil producer in the Middle East. “To have protests in Oman, which had previously been seen as a sleepy gulf kingdom, heightens concerns that nowhere is immune from the contagion affects,” said Helima L. Croft, a director and senior geopolitical analyst at Barclays Capital. “Every day we seem to have a new country with a new problem.” Oman produces 860,000 barrels of oil daily, almost 1 percent of world supplies, and its production has been rising in recent years with investments from Royal Dutch Shell, BP, Repsol and other international companies. Its importance is magnified by the fact that its crude is of such quality that it can be blended by most refineries around the world, although most of its exports now go to China and Japan.
 

Oman straddles the Strait of Hormuz, a strategic route through which 40 percent of the world’s oil tanker traffic crosses. On the other side of the strait lies Iran, another major producer, where there were reports on Tuesday that security forces had used tear gas to disperse protesters in Tehran. Iran, with approximately 10 percent of the world’s oil reserves, exports about 3.7 million barrels a day. The price of light sweet crude rose to $99.63 a barrel while Brent crude rose 3.24 percent to $115.42. Oil jumped above $100 a barrel in after-hours trading in New York. The national average price for a gallon of regular gasoline rose by nearly a penny on Tuesday to just over $3.37, which is 20 cents higher than a week ago. In testimony on Capitol Hill, Federal Reserve Chairman Ben S. Bernanke said that it would take a sustained increase in oil prices to push up consumer inflation significantly and threaten the economy. “Currently the cost pressures from higher commodity prices are being offset by the stability in unit labor costs,” he added. The rising tensions across the region sent the Saudi Arabian stock market into a tailspin, with Saudi shares suffering the biggest daily decline in more than two years despite rising oil prices. The Saudi index fell 6.8 percent, to its lowest close since July 2009. Refiners around the world have been hoping that Iraq, as violence ebbed, would again become a major oil producer, with production stabilizing at 2.3 million barrels a day. But over the weekend rebels bombed the country’s largest refinery, reducing the refinery’s capacity to refine petroleum products by 75,000 barrels a day. The attack came less than three weeks after a terrorist attack on a pipeline leading to a second refinery north of Baghdad.
Greg Priddy, an oil analyst at the Eurasia Group, a political risk consultancy, said it was “highly unlikely” that output in another major producer in the region would be shut off. But he said that markets were jittery because “if the Saudis are going to make up for the shortfall in Libya, their spare capacity is thinner.” He added, “Another major country going out completely would use most of their spare capacity, and that is really what the market is worried about.” Saudi Arabia has a total production capacity of 12.5 million barrels a day, and currently produces nine million barrels after increasing its output by several hundred thousand since the beginning of the year. Saudi officials say they are ready to pump what it takes to fill any supply gap, but much of its 3.5 million barrel excess capacity contains sour crudes that do not easily replace the Libyan sweet crude European refineries in particular desire to produce diesel. In Libya, major oil operations in the eastern part of the country remained under the control of rebel forces. While foreign operators withdrew most of their foreign workers, local Libyan employees can still produce some crude. Oil experts say at least one million of the country’s 1.6 million barrels a day of production has been shut down. Little if any oil can be shipped out of Libya because most ports were closed. Meanwhile, storage tanks were filling up rapidly. Oil traders said one major oil company cargo ship was supposed to berth this week, but no one was at the port to deliver an oil shipment, and shipping companies were reluctant to send ships into the Libyan ports. Most fields in Libya are operated by a combination of the National Oil Company, which owns 50 percent of the fields, and international consortiums, which share the other half.
The Arabian Gulf Oil Company, the largest subsidiary of the Libya National Oil Corporation, claims it had broken off from its mother company. It said it would honor its contracts but would divert the funds to the opposition, not to Tripoli. Arabian Gulf’s Hamada field had been shut, and output at Nafoora, Sarir and Misla had dropped to under half of maximum capacity. The company was still exporting crude at the Tobruk terminal, according to a report by PFC Energy, a consulting firm, but Arabian Gulf has stated that with only sporadic loading operations, it could reach its maximum storage capacity within two weeks, even with the drastically reduced production levels. Arabian Gulf officials “have claimed that the company’s export revenues will no longer be controlled by its parent company,” PFC Energy said in the report, “but have not been able to confirm how those revenues would be managed by the subsidiary or potentially channeled to Libya’s opposition.” Eni, the Italian oil giant and largest foreign operator in Libya, evacuated most of its employees and their families last week. The company’s fields were still producing 120,000 barrels a day of oil and natural gas, about half their capacity before the revolt began. The company declined to say which fields it had shut down and which were still in operation, citing safety concerns. Eni still has 21 Italian employees in Libya, a spokesman said.

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Arab Today, arab today uncertainty drives up oil prices Arab Today, arab today uncertainty drives up oil prices

 



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