Engineers reported on Tuesday that several oil fields across Libya have stopped production due to competition for control of the central bank and oil revenue. A spokesperson for the eastern Libyan government parliament stated that the supply of oil and gas will continue to be interrupted until the central bank governor resumes his legal duties.

Libya's oil fields are completely shut down

Most of the oil fields are located in eastern Libya, and local authorities have threatened to shut down all oil fields, exacerbating their standoff with the government. The Tripoli government heavily relies on oil revenue. The Prime Minister of the National Unity Government in Tripoli condemned the closure of the oil fields, stating that they should not be closed "under untenable excuses".

As of Tuesday, Libya's oil fields are in the process of being shut down. Engineers have confirmed that oil production at El Feel oil field in southwestern Libya has stopped, and production at several other oil fields in the east and southeast has also stopped or decreased. The local operator stated that production will gradually cease nationwide.

Libya's oil production averaged 1.2 million barrels per day before the shutdown and has been fluctuating in recent months. Due to political turmoil, there was a significant interruption in August. The current closure is due to the renewed tension between eastern and western Libya, particularly regarding the leadership of the Central Bank of Libya. The Central Bank of Libya is responsible for regulating the country's oil wealth.

The impact of Libya's oil field shutdown

Experts are evaluating the impact on the global oil market. Kpler pointed out that the closure has affected key ports including Marsa Al Hariga, Zueitina, Marsa Al Brega, Ras Lanuf, and Es Sider. Europe is the main export destination for Libyan crude oil and has become increasingly important in recent years.

According to Matt Smith, a leading oil analyst at KPLER Americas, Europe accounts for 85% of Libya's crude oil exports this year. Due to the fact that Libyan crude oil is mainly light and low sulfur crude oil, "European refineries may turn to the United States and West Africa to replace it

For the shipping industry, the consequences of the shutdown are mixed. Fearnley Securities commented, "Although lower production usually has a negative impact, the reduction in Libyan oil exports has already affected tanker transport volume. However, turning to the Middle East for oil may increase shipping routes, as OPEC+is unlikely to increase exports to cope with this situation." Fearnley Securities is a leading independent full-service investment bank focused on the maritime industry such as shipping.

According to leading shipbuilding brokerage company Pareto, Libya has exported an average of 1.04 million barrels of crude oil per day in the past 12 months, with the majority going to Spain, Italy, and France.

Libya's production stoppage in history is not new, and the market is currently in a wait-and-see state

In fact, Libya has a long history of oil supply disruptions. At present, it is difficult to say how long this shutdown will last. The longest oil shutdown in Libya occurred from January 2020 to September 2020, lasting approximately 9 months. During this period, Libya's oil production plummeted from approximately 1.2 million barrels per day to less than 100000 barrels per day, severely affecting the country's economy. The most recent incident occurred in 2022, when the largest oil field, including Sarala, was blocked, resulting in a daily production reduction of 1 million barrels.

The recent upward trend of oil prices has been suspended, and it slightly fell back on Tuesday. The previous three trading days saw a surge of over 7% due to concerns over the escalation of the Middle East conflict and supply concerns over the possible closure of Libyan oil fields.

Serena Huang, an analyst at Vortex, said that although the bearish sentiment towards global oil demand may drag down oil prices, and the demand from major Asian countries has a significant impact, the potential closure of Libyan oil fields will tighten supply and may put the brakes on the decline in oil prices. Other oil producing countries will be delighted by the rise in oil prices, but may not immediately increase supply.

Yeap Jun Rong, a market strategist at IG, said, "The downward trend in oil prices seems to have been contained, indicating that oil prices are breathing a sigh of relief after the sharp rise in the past few days. The surge in oil prices reflects geopolitical risks in the Middle East and the shutdown in Libya, and market participants are currently in a wait-and-see state to assess further developments in the situation

Brent crude oil daily chart