Libya Stuns Oil Market With Rapid Recovery

Libya has stunned everyone by fairly quickly ramping up to 1.2 million bpd in a matter of months. That’s an impressive feat impressive given the damage that was done. But as we have said repeatedly in this newsletter, this is far from over. And as we have also said repeatedly, this isn’t about oil production; it’s about revenue distribution. If revenues aren’t distributed in a manner that is satisfactory to General Haftar, there will be another blockade.

Yet, the markets seem able to focus only on the amount of oil Libya can produce - anything else is too complicated to consider. And while distracted by all the oil coming online and going out for export to add to the glut, and “peace” talks meant to demilitarize Sirte, the gateway to Libyan oil, the talking heads once again forgot about the revenues.

Now, the Libyan National Oil Company (NOC) has blocked the Libyan Central Bank’s access to oil revenues entirely. If you recall, this was General Haftar’s biggest issue: He controlled the oil but all the revenues were going to the Central Bank and essentially being used to undermine his authority. Haftar lifted the blockade because of a deal struck in September to form a commission to determine how oil revenues would be spent and distributed. But a resolution has not been reached. The dueling Houses of Representatives (in the Haftar-backed East and the Tripoli-led West) cannot agree on a revenue-sharing commission. Until they do, the threat of a new blockade remains high, and the NOC isn’t going to funnel oil revenues to the Central Bank without a resolution. The prime minister of the GNA, Fayez al-Sarraj, has now called an emergency meeting to address frozen revenues, but it’s not likely to deliver any result.

That 1.2 million bpd Libya is now producing could stop as quickly as it started flowing if an agreement cannot be reached soon. The militias that are being stood down in Sirte can easily be re-mobilized.