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Rebel advance in Libya roils global oil prices

Prices fall in several markets Monday, even as petroleum industry experts and political analysts say it could take more than a year for Libya to pump oil at pre-war levels.

August 23, 2011|By Neela Banerjee and Shan Li, Los Angeles Times
  • Carissa Wiley of Fresno pumps gas at Shell station in Menlo Park. Californias average gas price over the last week averaged $3.73 a gallon, the same as a week earlier and up 59 cents from a year ago.
Carissa Wiley of Fresno pumps gas at Shell station in Menlo Park. Californias… (Paul Sakuma, Associated…)

Reporting from Washington and Los Angeles — Global oil prices were roiled by news of the rebel advance into the Libyan capital of Tripoli and the prospect that oil would be flowing from that country again.

But petroleum industry experts warned that it could take more than a year for Libya to pump oil at pre-war levels, dampening the prospects for sharply cheaper gasoline prices in the near future.

Prices at the pump could fall in the near future, but that would largely be due to the weak economy and the end of the summer driving season, not a fast rebound of Libyan exports, said David Kirsch, director of market intelligence at PFC Energy, a consulting firm.

Libya faces considerable barriers to reviving oil production, including the state of its oil infrastructure and continuing political tension. Few regional and industry analysts expect them to be swiftly overcome.

"The most likely medium-term trajectory for Libya entails a thin layer of governance," wrote Cliff Kupchan, a director at the political risk consulting firm Eurasia Group. "Libya will likely be somewhere between a functioning and a failed state."

Brent crude, which is used to price many international oil varieties, fell as much as $3.47, or 3.2%, to $105.15 a barrel before closing Monday at $108.36 a barrel, 26 cents less than the previous day of trading on the ICE Futures Exchange in London.

Crude oil futures also fell during trading on the New York Mercantile Exchange, but by the end of the day they were up $1.86, to $84.12 a barrel.

Crude oil prices rocketed in mid-February when violence shook Libya, the first major oil-producing country gripped by the Arab Spring political upheavals. Libya produced about 1.8 million barrels a day before the civil war and shipped out nearly all of it, accounting for about 2% of world oil production.

Predictions for the resurgence of Libyan oil production vary widely, in part because independent analysts have stayed out of the country during the fighting. Libya's former top oil official, Shukri Ghanem, told Reuters in London that it might take up to 18 months to reach pre-war production levels. Others, including the oil industry consulting firm Wood Mackenzie, predicted in a report last month that it might take three years.

As a result, Libya will hardly make a dent in gasoline prices any time soon, analysts said.

In the U.S., gas prices dropped 2 cents a gallon over the last week, to $3.58, according to a weekly survey of prices released Monday by the Energy Department. A year ago, the average price for a gallon of gasoline nationally was just $2.70.

California's average gas price over the last week averaged $3.73 a gallon, the same as a week earlier and up 59 cents from a year ago.

Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey, said that many traders in the oil market were "jumping the gun" by guessing that Kadafi's overthrow would lead immediately to a bump in the global oil supply.

"The reality is that you need utilities and everything that comes with a workable government to get things reinstated," Kloza said. "You don't have a national oil company there anymore. You need pipes and ports restored. You need oil companies partnering with Libyan entities to come back, and they need to know it'll be safe."

Analysts said that based on reports they had received from Libya, they believed some damage had occurred to pipelines and possibly refineries, though the extent of the damage remained unknown.

But the biggest risks to restoring oil production stem from the challenges the Transitional National Council, made up of anti-Kadafi factions, faces in establishing a united government. The council's diverse members — hard-line Islamists, monarchists, tribal leaders — put aside their differences to battle Kadafi. But analysts worry that without a common enemy, the council might fall victim to factionalism and, as a result, fail to govern.

"Each will have a different view of the future of the Libyan state, and different preferences of how the oil sector should be structured and administered," Kirsch said. "They will need to get agreement on those structural issues, and that could take you well through the end of next year and into 2013."

neela.banerjee@latimes.com

shan.li@latimes.com

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