Overstating the Disruption in Libyan Oil Production

by Addison Wiggin.

Loyalists and rebels in Libya are fighting it out over the town of Brega. That’s one of five export terminals in the east of the country. Two US warships loom over the horizon in the Mediterranean.

The flow of Libyan oil to the world market — already a trickle — may soon shut down completely. West Texas Intermediate, the oil price most often cited by the media, cracked $100 yesterday, and as we write, it’s nearly $101.

Brent crude, which tracks the North Sea stuff, has already breached $116. The press are atwitter with projections of $5 gallons of gas and escalating unrest around the world.

But let’s take a deep breath. We’d rather take our time and put this mess in perspective: In terms of oil lost to the world market, this is still peanuts compared to previous supply disruptions.

Global Oil Supply Disruptions By Average Gross Supply Losses

As the world uses a lot more oil now than it did in, say, 1978, the impact of Libya is even more muted than the chart reveals.

Still, the crisis could spread. According to one of the oil industry’s bibles, the annual BP Statistical Review, only three OPEC members have actually grown their production during the last 10 years.

One of them is Libya. The others are Kuwait and Algeria.

“Algeria’s leadership,” says The Associated Press this morning, “riddled by corruption and at the mercy of the army, is sitting in a circle of fire, with a restive populace at home and pro-democracy uprisings in neighboring Tunisia and Libya that are shaking the Arab world to the core.”

There’ve been two months of strikes, sit-ins and attempted protest marches. The government just lifted a state of emergency after 19 years. It’s anyone’s guess whether measures like those mean Algeria goes the way of Egypt… or Libya.

At 2.1 million barrels per day, Algeria’s oil production is slightly greater than that of Libya’s, at 1.8 million.

If Algeria goes to pot, figure double the impact. Oil could jump another $15… and oil producers in safer regions of the world will stand to benefit.

Addison Wiggin
for The Daily Reckoning

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • jason

    Interesting column, however, it is time to panic for the US people, as our costs are rising, our pay is stagnating. The so called recovery that has been going on for two years really hasn’t panned out, and people still working don’t have the extra money to buy gas to commute to their work. It also makes you wonder why, if the crisis isn’t so great, oil is spiking like crazy, and is nearly as high as it was in 2008 before the big bust up.

  • guilhem

    Hi,

    It is always good to put things in perspective although, this time is slightly different.
    First of all because the actual buffer available from various others countries is very much smaller than used to be. Second, because the buffer is mostly coming from Saoudi Arabia which and made of sour and heavy crude, while lost production is primarily light and sweet. Third because the economy is in a very bad shape…
    Luckily, currently, we enter in europe into the refinery turnaround season which cuts total crude intake from 900 kbd ot up to 1.600 kbd and this till mid april.
    The current situation with WTI is an aberration. More analyst are forecasting lower WTI versus brent based on silly thinking. WTI is a very good crude which can be bought at a discount to FOB Persian Gulf crude, directly inland USA.
    Who can believe WTI will remain discounted till december 2014.
    Thanks for your always interesting and educational articles.

  • scott walker

    Golly Gee. I sure am glad it couldn’t be speculators driving up the price, now could it?

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