Skip to main content

The Globe and Mail

Forget Syria. The oil market should be worried about Libya

Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

As air strikes loom over Syria and turmoil rages across the Middle East, oil is up and stocks are down. That is a predictable and understandable reaction to the uncertainty. The price of a barrel of Brent crude oil is 15 per cent higher over three months, with a sharp rise in the past few days. Investors can pick and choose between the horrors in Syria or the paralysis in Egypt. Yet the country the oil market really ought to worry about is Libya.

Syria is a marginal player in the oil market – always has been, always will. Before the civil war, it produced about 370,000 barrels of oil equivalent a day; that may have fallen to about 70,000 b/d now. Nor is it a significant transit point. A western military strike there would undoubtedly have a financial impact – Société Générale estimates that it could push the oil price up to $125 (U.S.) from about $117 on Wednesday. But that ought to be shortlived, unless there is contagion on an unprecedented scale across the region, which is unlikely.

Story continues below advertisement

More troubling is Libya, which is racked by strikes and protests that have cut its daily oil production to a trickle. Its average output in August was 300,000 b/d, officials said this week. Earlier this year, Libya was boasting that it was almost back to its prewar production level of about 1.3 million b/d. But the chaos that has gripped the country since the ousting of Moammar Gadhafi in 2011 now threatens to curtail production indefinitely as factions fight for control of oil resources and revenues.

That is bad news for Eni SpA, for sure. The recovery of Libyan production lies behind the Italian group's outperformance in recent months. Repsol YPF SA and Marathon Oil Corp. also have stakes in fields there. Any prolonged breakdown of security will be a negative, though so far there has been little stock market reaction.

Investors can worry about Syria by all means, but beware more trouble out of Libya.

Report an error
Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.