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Turnaround season in US refining has caused a major oversupply of US crude, but international markets have been roiled by a surprise re-outage in Libya. In this note we focus on the Libya issue. We also address the countervailing improvement in US-Iranian relations and the upcoming decision on Chinese-Iranian oil imports sanctions exemption. We very briefly show Iraqi, other OPEC, and Saudi production. Notably, the 550kb/d fall in Iraqi production from 2012 highs to September 2013 lows was under-appreciated by the market, obscured as it was by Syria, Egypt, Libya, and Iran. Note: IEA non-OPEC supply forecasts of 1.8mb/d marginal growth for 2014 are for an all-time high.
Things can’t get worse in Libya
The 1mb/d+ outages that have characterized oil markets since the 2008 peak price have been due to Libya and Iran. To be clear, these are enormous outages that have clearly driven global (Brent) oil prices higher. For thirty years Libya, for all its international controversy, steadily supplied world oil markets with around 1.3mb/d of light sweet oil. Consensus was that the relatively small population of Libya, at around 6m, made it politically stable. Until it wasn’t. Now the country is in disarray, with factions independently taking control and interrupting oil exports. There is no single movement here, as we show in this note. However we do take the view that the situation in Libya cannot now get materially worse, with possibly less than 90kb/d of exports of light sweet crude, there is little left to lose, and plenty to gain. The country is working on a new constitution, and we think there is reason to believe that it is this process that is causing the upsurge in disruption by local interests.
A huge shift in Iran
’s newly-elected President Hassan Rouhani has ushered in a seismic shift in global geopolitics that has reverberated across the oil world, notably to the consternation of the Saudis and other Sunni Gulf oil states. With the all-important blessing of Iran’s Supreme Leader Ayatollah Ali Khamenei, as well as the country’s Parliament, Rouhani quickly reached out to US President Obama directly, and subsequently has moved Iran into nuclear talks over enrichment that had all but died under the leadership of previous President Ahmadinejad. Although nuclear talks in Geneva have ended, there is agreement to meet again as soon as November 20. Rouhani openly hopes for a deal to sanctions that have been the primary cause for the precipitous drop in Iranian oil production and exports. Intelligence suggests that the Obama regime is pushing Congress to soften its stance on sanctions while negotiations are underway, with a notable upcoming decision on the potential for an exemption for China to import Iranian oil, that needs a decision by December 2.
