Global Crude Supply Threatened by Libyan Crises

Libyan crude oil production output may drop by as much as a quarter as Africa's third largest producer faces daunting civil unrest.

With President Muammar Gaddafi still defiant despite public protest against his 41-year rule, there are fears
that the international oil market and indeed, the global economy, could be the worse for it in the days ahead.

Crude oil prices futures rose to their highest in nearly two and a half years on Wednesday as Libya's violent uprising threatened to disrupt oil shipments. The commodity surged to $96.39 a barrel in New York, and to $108.42 in London.

Latest figures show how much the Libyan crisis is affecting the global economy. The country produces 1.6 million barrels per day (bpd) of high-quality oil, or about 1.9 per cent of world output, while Libyan reserves of 44.3 billion barrels are the continent's largest, according to BP Plc's Statistical Review of World Energy.

1.3 million bpd is exported, mainly to Europe. Austria's OMV said on Wednesday it might be heading for a full production shutdown in Libya. Total, Repsol, Eni and BASF have also said they are either slowing or stopping output. Other oil companies, including Royal Dutch Shell and Germany's Wintershall, have started withdrawing their workers.

Beneficial for Nigeria

However, there is optimism that the spike in oil prices will be beneficial to Nigeria, the world's seventh largest producer. With a 2.3 million bpd output, experts say this is a good time for the country to build up her foreign reserves.

"It is worth noting that elevated Bonny Light prices could also help re-build the excess crude account and/or launch the planned sovereign wealth fund, although this would be conditional on the authorities' willingness to effectively resume the implementation of the oil fiscal rule and save oil-related proceeds for the rainy day," said Samir Gadio, emerging market strategist at Standard Bank.

According to him, this would improve the ability of the Central Bank of Nigeria to meet demand for dollars at the official foreign exchange market. He nonetheless said as an import dependent country, Nigeria should prepare for the downside: "The downside risk is, however, that higher energy prices could have an impact on imported inflation."

The series of uprising sweeping through the Middle East in the last few weeks has heightened fears about the possible slip into another round of global economic crisis.

Tunisia, Egypt, and now Bahrain, Yemen, and Libya have come under unprecedented civilian protests against the authoritarian rule that were hitherto in place. The fear is that this could spread to larger producers like Saudi Arabia. For a region which accounts substantially for global crude oil supply, major economies have cause for worry.

Intense volatility

Brazilian state oil company, Petrobras, has said it will not change its gasoline prices in Brazil despite volatility in global oil prices caused by Middle East turmoil, its president was quoted as saying by Brazilian media on Wednesday.

"We won't pass on the volatility of international prices to Brazil," Sergio Gabrielli told reporters on Tuesday, according to the Valor Economico newspaper, adding he expected months of "intense volatility" in commodity prices, according to Reuters.

Meanwhile, in America, economists are warning that the rising cost of crude could dent consumer confidence and stifle economic recovery. Experts fear that a rise in petrol prices could force businesses and consumers to spend less on other things, slowing both the economy and the pace of hiring.

Although Saudi Arabia has promised to make good any shortfall in global oil supplies, the concern is how much calm this would achieve in an already volatile oil market.