By Benoît Faucon
LONDON--The reopening of Libyan oil fields and ports this month
has been a key factor behind a steady fall in international oil
prices recently, with U.S. prices falling to a four-month low on
Thursday.
But markets may be overlooking resurgent risks to the North
African country's oil supply.
Over the past week fighting for control of the airport in
Tripoli, Libya's capital, has set ablaze part of a storage facility
holding 90 million liters (almost 24 million gallons) of oil during
the worst violence in the country since the 2011 civil war that led
to the downfall of former leader Moammar Gadhafi.
The oil tank blazes and fighting in Tripoli and the eastern city
of Benghazi have led to "serious doubts" about the safety of
Libya's oil fields, Commerzbank commodities analysts said in a
note.
"The current oil price continues to insufficiently reflect the
risks to the oil supply." Commerzbank said.
Brent crude peaked at around $115 per barrel in mid-June amid
supply fears after Sunni militants seized large parts of western
Iraq.
But the price has since fallen by around $9 as a revival of
Libya's oil industry spurred hopes supply from there could replace
barrels that might be lost from Iraq. Brent crude was trading below
$106 per barrel Friday.
On the New York Mercantile Exchange, light, sweet crude declined
2.1%, to $98.17 a barrel Thursday, the lowest price since March 17,
and was still declining Friday.
Following an end to protests by a local ethnic group at the
country's largest oil field, called Sharara, Libya's oil production
surged to a five-month high in mid-July to about 600,000 barrels a
day--one third of which came from Sharara.
Meanwhile Libya's government announced an agreement in July with
rebel forces that had occupied eastern ports for nearly a year,
sparking hopes exports would soon rise.
But the reopening of ports and oil fields has translated into
only a trickle of extra exports as Libya struggles to sell its oil,
while the current turmoil is threatening whatever progress has been
made.
The clashes that erupted on July 13 between two rival Libyan
militia over Tripoli airport have already dented production at both
Sharara, where Spain's Repsol S.A. is a joint venture partner, and
el-Feel, another Sahara oil field where Italy's Eni SpA is a
partner. Workers are unable to travel to the fields because roads
are too unsafe, reducing the number of staff manning the
operations, according to other staff there.
Expatriates working for France's Total S.A. in Libya have
evacuated the country, the company said on July 15. Foreign workers
for Eni and Repsol have mostly left the country too, staff at their
joint ventures have said.
The departure of oil-firm expatriates will harm production if
the violence doesn't abate, said Tarek Alwan, managing director of
SOC Libya, a consultancy that advises international companies.
A week after the fighting broke out Libya's state-owned National
Oil Co. acknowledged the country's output had fallen back by around
100,000 barrels a day.
The same militias fighting for control of Tripoli's airport also
hold sway over oil supplies from Sharara--sparking fears among
Libyan oil officials that these groups could use their military
power to shut its oil flows altogether. For example, gunmen hailing
from the mountain town of Zintan control land crossed by the oil
pipeline that leads from Sharara to the oil terminal of Zawiya.
Meanwhile, no oil has been shipped from the two key Eastern oil
ports that reopened this month as buyers, primarily in Europe, fear
supplies are too unreliable to be ordered.
Nicole Friedman in New York contributed to this article
Write to Benoît Faucon at benoit.faucon@wsj.com
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