Saudi Arabia and other OPEC nations including those in West Africa are willing and able to replace any lost Libyan oil as soon as companies ask for it, including crude of the same quality, a Saudi Arabian oil official said.
There is no reason for oil prices to rise because Saudi Arabia and OPEC won’t allow shortages to exist, the official said by telephone today, declining to be identified by name.
As OPEC’s statute indicates, it is the responsibility of the group to ensure that the market is well balanced and that there is no shortage of supply, the official said.
Exporters are under pressure to ensure adequate supplies to the market after violence in Libya, Africa’s third-largest producer, sent Brent crude oil futures in London to as high as $119.79 a barrel earlier today, the highest since August 2008. Brent retreated below $114 after the Saudi official’s comments were reported.
Some West African oil which goes to Asian markets can be redirected to Europe, and extra Saudi oil can go to Asia to replace the West African supplies, the official said. OPEC’s West African members are Nigeria and Angola.
Libya’s benchmark Es Sider grade has a low density and low sulfur content, making it similar to North Sea Brent crude and some African crudes which are favored by refiners because they yield higher-value products such as gasoline.
OPEC collectively pumped 29.4 million barrels a day last month, according to Bloomberg estimates, and has about 5 million barrels a day of spare capacity, according to the International Energy Agency. Most of the unused capacity is in Saudi Arabia, the organization’s biggest producer.
Eni SpA, the largest foreign oil producer in Libya, and other companies including Total SA and OMV AG said they were curtailing production and evacuating staff after violent clashes between troops and anti-government protestors in the past few days.
Eni’s oil and gas production in Libya has been halved to 120,000 barrels of oil equivalent a day, Ansa newswire said, citing comments by Eni Chief Executive Officer Paolo Scaroni to reporters in Rome today. Gas flow to Italy from Eni’s Libya fields halted this week.
Libya pumped 1.6 million barrels a day last month, according to Bloomberg estimates. Barclay Capital estimates as much as 1 million barrels a day has been halted while Goldman Sachs Group Inc. puts the disruption at 500,000 barrels a day.
Saudi oil can flow through the kingdom’s East-West pipeline, reducing the time to reach European refineries, the Saudi official said. The line goes from the kingdom’s eastern province to the Red Sea port of Yanbu and can transport as much as 5 million barrels a day for export to European markets, according to a U.S. Energy Information Administration website.
Saudi Arabia has previously announced unilateral decisions to boost production without seeking OPEC’s approval first, including in 2008 when prices were rallying toward a record.
On May 16 that year it said it would add 300,000 barrels a day from the following month, taking output to 9.45 million barrels a day, and on June 19 it said it would add a further 200,000 barrels a day. At an emergency oil summit convened by King Abdullah in Jeddah on June 22 that year, the country said it could add a further 2.5 million barrels a day to its output capacity from new giant fields if needed, taking its total capacity to 15 million barrels a day.
Oil reached $147.27 a barrel in July 2008 before retreating to below $40 a barrel at the end of that year.
The Paris-based International Energy Agency is closely monitoring the situation in Libya and is ready to release supplies from government-maintained stockpiles in the event of a disruption, according to a Feb. 22 statement on its website. There is no change to this policy, an IEA spokesperson who declined to be identified by name said today. Senior IEA officials are in a board meeting today and tomorrow, at which the need for emergency inventories may be discussed.
OPEC’s 12 members are Algeria, Angola, Ecuador, Iran, Iraq Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. The group is due to hold its next formal meeting in early June.
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