LONDON: No matter who eventually wins the lethal battles raging in Libya, the oil market will likely be starved of hundreds of millions of barrels for a long time, reshaping oil flows from west to east. Top quality Nigerian and Caspian crude grades have shot to multi-year highs and huge premiums to Middle Eastern grades, wrecking buying opportunities for emerging Asian economies. More of this oil will likely head to Europe's refiners who do not need to pay up the long-haul voyage on top of the Libyan war premium, unless they decide it is simply too expensive to run refineries. The political unrest in Libya has so far cost the OPEC producer 1 million barrels of crude oil output per day - over half its daily output - and exports are paralyzed due to a lack of staff, sanctions and banks' refusal to fund deals. Industry estimates for how much and for how long Libyan oil will be missed from the market vary. But the consensus is much of the oil will disappear for the rest of 2011 as the unrest shows signs of developing into a protracted battle which has already damaged some terminal and pipeline infrastructure. This would mean a loss of nearly 300 million barrels of oil. “It looks like the country is heading into a full-blown civil war,” said Samuel Ciszuk, senior Middle East and North Africa energy analyst with IHS Energy. “There will be no quick solution. So the market will have to get used to Libyan oil off stream for the most of this year or even the rest of the year.” The chief executive of Italian oil firm ENI Paolo Scaroni told the FT it might take between 6 months to a year for Libyan operations to return to normal. Bank of America-Merrill Lynch estimates the average 1.4 million barrels per day of Libyan oil will be off the market for more than a year. Analysts are weighing the prospect of a sustained period of zero production if more upstream infrastructure is damaged. “Will the shut-in volumes go higher? The answer is ‘yes',” Societe Generale's oil analyst Mike Wittner said. “It is a question of time whether oil facilities are getting targeted. And if it happens it will take months to repair damaged facilities. If the violence spread into oilfields, repair work to upstream facility even takes longer than downstream.”
