Crude steadies after fall of Libyan leader

Regime change in Libya put some uncertainty back into the crude oil markets, as traders weighed the news against US economic performance.After dropping almost $3 a barrel on news of the fall of Tripoli on 22 August, European benchmark Brent crude oil prices edged up $0.84 to $110.15 a barrel, while the US’ West Texas Intermediate (WTI) contract closed at $85.16 a barrel, down $0.28 on 24 August.With the six-month long Libyan stalemate coming to a conclusion, the big question is how quickly can any new government get production back online.Having seized control of the Ras Lanuf and Brega oil terminals in the east of the country, earlier in the week, the Transitional National Council (TNC) called on the country’s oil workers to return to work on 24 August.Barclays Capital says a resumption of between 250,000- 500,000-barrels-a-day (b/d) of production could be possible by the end of 2011 or early 2012, “on the assumption that Gaddafi actually falls”.But the investment bank’s analysts note that “extrapolating Gaddafi’s departure to the restoration of full output volume of 1.6 million b/d from Libya would be a mistake”.Before the revolution, Libya produced some 1.6 million b/d and exported 1.3 million b/d of light crude oil, mainly to the European market.Shokri Ghanem, the former chairman of state-run National Oil Company (NOC), now described as the country’s de-facto Oil Minister, says output is likely to resume within four months of the end of fighting. Starting at between 300,000-400,000 b/d, production could rise to 1 million b/d within a year.Ongoing fighting in some areas is not the only concern. The extent of damage to Libya’s oil infrastructure and oil fields by numerous attacks by forces loyal to the deposed leader Muammar Qadaffi is unclear. The hasty departure of international oil companies operating in Libya when the rebellion kicked off in February is also likely to have caused problems. Some 700 Libyan oil wells need workovers.Many commentators have been quick to draw parallels with Iraq, which took almost a decade to return to pre-invasion production levels.The task will fall to the rebel-aligned Arabian Gulf Oil Company (AGOC) which split from NOC early in conflict. The company could begin production at around 150,000 b/d from the Mesla and Sariri fields in the east of the country.But Libya will also have to negotiate with foreign oil companies the terms of production-sharing agreements for investments and operations in new and old oilfields.