While many traders have been focused on the Brexit talks in Brussels, slightly off the mainstream news agenda, the situation in Libya has deteriorated. Like it or not, this is driving up the price of Brent crude oil.
A major peace conference that had been scheduled on Sunday seems to be off the agenda, effectively destroying 18 months of work by the United Nations to broker some form agreement on elections between warring parties.
Libya has two major problems: firstly, following the fall of its dictator Muammar Gaddafi in 2011, the country has been divided into two power blocs, one in the west around the former capital Tripoli, and the second in the east in Benghazi, the country’s second biggest city. Beyond this the country remains highly politically fragmented, with authority being contested by loose coalitions of tribes and militias.
In short, it is a mess.
Libya is key component in Brent crude price action
Libya is a major oil producer, and oil production from Libyan fields had been picking up in Q4 with a modicum of political stability. However optimism has been shattered following an attack on Tripoli by General Khalifa Haftar this month. This was a move in open defiance of the UN and saw Haftar’s troops attack the civilian airport in Tripoli, leading to the UN itself threatening Haftar with war crimes prosecution.
Haftar is an old school hardliner in his 70s. He was a supporter of Gaddafi when he seized power in a military coup in 1969. He was appointed commander of Libyan conventional forces following Gaddafi’s death in 2011. When Libya’s General National Congress refused to surrender power at the end of its term of office in 2014, Haftar launched a military campaign against it.
The effect of problems in Libya – and unrelated issues in Venezuela – is lifting the oil price. The three month oil price chart has seen Brent crude enjoying a steady run since the beginning of February when the oil price stood at just under $62/bbl.
Brent oil price sees major gains in March/April
Brent crude oil has seen an 18% gain since then and has passed the point where it again becomes economic for some US shale resources to come back online. Seventy dollars had been considered something of a resistance level for Brent crude, but with fighting heating up around Tripoli and elections seemingly off the table now, it looks like oil will be looking for some higher numbers in the weeks to come, although still not close to its 52 week high.
Haftar’s troops control most of Libya’s key oil ports, those serving the Sirte basin, a collection of fields in eastern Libya which constitute about two thirds of Libya’s production.