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February 22, 2011 10:45 am
The escalating violence in Libya kept oil prices elevated near 2½-year highs, with the Opec basket of crude oils – the most representative measure of physical oil prices – rising above $100 a barrel for the first time since the financial crisis.
Most oil ports and refineries have shut down in Libya, the world’s 12th largest oil exporter, according to traders. At the same time, international oil companies were evacuating their staff from the country in a move that executives and analysts said would probably lead to a sharp drop in oil output.
“It feels like it’s a matter of time,” said James Zhang, energy analyst at Standard Bank in London. “If the situation continues it’s going to spread to those production sites. I don’t think the production in Libya is in tight control by the government or army as the Suez Canal by the Egyptian army.”
Brent oil futures rose $1.53 on Tuesday morning to $107.27 a barrel, following a 6 per cent spike on Monday that lifted the oil benchmark to a peak of $108.70, the highest since September 2008.
The jump in oil prices is likely to put pressure on the Opec group to raise production. Senior officials from several Opec members were due to meet on Tuesday in Riyadh. The price of a basket of Opec crudes was $100.59 a barrel on Monday, the group said on Tuesday, up from $99.08 the previous Friday.
On Monday, Prince Abdulaziz, the deputy Saudi oil minister, told a news conference that there was no need for intervention.
“We’re much more focused on how the market balance is, is it sufficiently supplied? And the answer is ‘yes, abundantly’’ therefore does the situation warrant any kind of intervention? I don’t think so,” he said.
Libya, which produces 1.6m barrels of oil a day, is a medium-sized member of Opec. Beyond the concerns about the potential loss of Libyan output from the oil market – which would disproportionately affect Italy, Germany, France and Spain, the main importers of the country’s crude – traders are worried about the spread of unrest to other countries in the region.
“The fact that it is now a 1.6m b/d producer of the Opec group garnering the attention of the media is raising concerns that the regional protests, which started up in oil market-irrelevant Tunisia, will spread to other major producers,” said JBC Energy, a Vienna-based consultancy.
While Libya’s state-owned national oil company controls the majority of the country’s oil production, international oil companies are key to sustaining output through joint ventures. Subcontractors are also essential to run the fields.
Wintershall, a subsidiary of Germany’s BASF, was the only company to confirm publicly it was shutting down production in the country. But executives at other leading oil companies privately conceded they were implementing emergency plans to repatriate all their staff and shut down output. They added that subcontractors, key to managing the complex oilfields, were already leaving, forcing them to follow suit.
Executives asked not to be named as their companies were still in the process of evacuating staff. The oilfields in the south of the country run by international firms have their own airstrips. Until the last staffer is pulled out of the country, a process that could take hours or a few days, companies planned to keep production up.
“But the last man will switch off the button,” an executive said.
Additional reporting by Reuters
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