While the oil market is fixated on the U.S.-China trade war for signs of demand, and on Iran, Venezuela, and the Middle East for signs of more supply disruptions, investors have not fully priced in the increased risk that Libya’s fighting could result in a serious oil supply outage, analysts told CNBC on Wednesday.
The security situation in Libya has materially worsened after eastern strongman General Khalifa Haftar ordered in early April his Libyan National Army (LNA) to march on the capital Tripoli. The self-styled army has been clashing with troops of the UN-backed government in a renewed confrontation that could escalate and threaten to disrupt, once again, Libya’s oil production and exports.
Earlier this month, Hamish Kinnear, Senior Analyst for Verisk Maplecroft, wrote in a report that the struggle between the two factions is now extending to the central bank of Libya and to its National Oil Corporation.
“The security situation is deteriorating and with Libya lurching from one crisis to another, conditions are increasingly ripe for a supply shock,” CNBC quoted Stephen Brennock, an oil analyst with PVM Oil Associates, as saying in a research note published on Wednesday.
According to Standard Chartered’s global head of commodities Paul Horsnell, investors are “clearly ignoring” warnings from National Oil Corporation’s (NOC) chairman Mustafa Sanalla that the ongoing fighting could put the entire Libyan oil sector at risk.
“Protracted hostilities continue to hamper NOC operations and our ability to serve the Libyan people. Key infrastructure is being damaged and security eroded - allowing criminal elements to prosper,” Sanalla said in a statement last week.
“NOC will take all necessary measures to investigate and prosecute those committing crimes that undermine the oil sector and our ability to maintain operations. An immediate ceasefire is needed. The alternative is further escalation and destruction,” Sanalla added.
Meanwhile, Haftar told French newspaper Le Journal du Dimanche in an interview on Sunday that he is ruling out a ceasefire in the fight for Tripoli and accused the United Nations of looking to partition Libya.
By Tsvetana Paraskova for Oilprice.com
