Oil rebounds as Libyan clashes spark supply concerns

Oil prices recovered on Monday after sliding for two successive days, as clashes in Libya fueled concern that supplies may be undermined. Fierce fighting amid factions battling for control of the country at a major Libyan terminal halted 800,000 barrels of crude for more than two days.

The tank fires at the Es Sider facilities began on December 25 after the Libyan Petroleum Facilities Guard gave the Islamist militias a deadline before hitting with air strikes, to which the rebels responded with rockets. The facilities have a total storage capacity of 6.2 million barrels.

After rising to $60.40 early on Monday, Brent Crude dropped marginally to $59.94. US crude rose to $55.74 in early trading on Monday.

Most analysts expect Brent crude to hover around the $60-mark for the rest of this week.

Two years of cheap oil?

The Financial Times quoted a person claiming to be familiar with Saudi oil affairs who said the country’s national oil company is preparing for two years of low oil prices.

Saudi Arabia’s oil minister Ibrahim al-Assaf said after releasing the 2015 budget “We have the ability to endure low oil prices over the medium term.”

Oil

If prices continue to fall, OPEC members will probably start pouncing on each other for market share.

Most oil analysts forecast low oil prices at least for the first half of 2015, and possibly during the second half too.

The price of oil has declined by more than 45% this year, the steepest annual fall in six years, as OPEC decided not to cut production to defend market share, even though US shale producers pushed American production to a 3-decade high.

Libya’s falling output, from 1.59 million barrels per day at the end of 2010 to 580,000 per day in November, was virtually the only negative component in the supply sector.

The winners and losers in a price war

OPEC’s primary objective of not reducing oil production is to protect market share. If prices remain low or continue declining over the months to come, it will be only a matter of time before OPEC members start turning on each other for market share. The battle will also spill over to non-OPEC producers.

In such a scenario, the winners would be those with the lowest production costs and highest surplus funds.

According to the Arab Times, Kuwait and Saudi Arabia would be the winners in such a price and market-share war, while the biggest losers would be Venezuela and Nigeria, followed by Iran, Iraq and Russia.

Venezuela would probably go bankrupt and implode politically.

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