logo
g Text Version
Beauty & Self
Books & Music
Career
Computers
Education
Family
Food & Wine
Health & Fitness
Hobbies & Crafts
Home & Garden
Money
News & Politics
Relationships
Religion & Spirituality
Sports
Travel & Culture
TV & Movies

dailyclick
Bored? Games!
Nutrition
Postcards
Take a Quiz
Rate My Photo

new
Houseplants
Romance Movies
Creativity
Family Travel
Southwest USA
Irish Culture
Home Finance


dailyclick
All times in EST

Full Schedule
g
g Investing Site

BellaOnline's Investing Editor

g

Why Libya Is Important to Oil Prices

Guest Author - Tony Daltorio

As most investors are well aware, oil prices have surged as turmoil in Libya has risen. Increased violence in that North African nation has knocked out at least half the country's production of 1.6 million barrels a day of oil.

Lower output from Libya's oil fields comes at an inconvenient time for global economies.

The world's thirst for oil is especially strong right now in diesel and other distillates. According to JPMorgan, these distillates will account for more than half the world's demand growth in oil this year. An important fact to keep in mind is the fact that it takes more of heavier oils to produce diesel than it does light crude oil from Libya.

In addition, environmental regulations globally are clamping down on fuels with high sulfur content to combat air pollution. For example, Europe this year limited sulfur content in fuels for some machinery and on inland waterways. And in 2012, Europe will expand the restrictions to trains too.

Similar trends are taking place in the United States. The US Department of Energy just sold 2 million barrels of high-sulfur heating oil from a strategic reserve. It will soon be bidding for the same amount of low-sulfur oil this summer, further stoking demand for sweet crudes, such as come from Libya.

Libya's Oil

Stock markets rallied earlier this week as Saudi Arabia announced that it would make up for any shortfall in Libyan oil production. But the solution is not that easy people who bought stocks on that news really don't understand the oil market.

Yes, it's true that Libya produces only 1.6 million of the globe's 87 million barrels of oil a day. However, it produces some of the most coveted and highest quality light, sweet crude oil on the planet. Its crude is easily refined into gasoline and diesel. It is also lower in sulfur, making it cleaner to burn.

Libya's crude oil stream includes Es Sider, whose light density and low sulfur content makes it desirable. Even more desirable is the oil from the huge El Sharara oil field in Libya run by Spain's Repsol. This oil is a mere 0.07 per cent sulfur!

Saudi Arabia is the de facto custodian of OPEC's 4.7 billion barrels a day of effective spare capacity. However, Saudi crude oil overall is not of the same quality as Libya's.

Most of the country's production is classified as medium crude oil. Arab Light, the leading Saudi oil by volume, is a relatively high 1.8 per cent sulfur and heavier. This makes it more difficult to refine into light products such as diesel and other fuels.

The Future for Oil Prices

The take away for investors is that the Saudis have adequate spare supplies to replace Libya's lost production. But the quality of the oil is mostly inferior. You can't just substitute one barrel of Saudi oil for one barrel of Libyan oil. For example, it takes three barrels of Saudi oil to make as much diesel as Libyan oil.

This means oil companies will have to do more than just replace lost production barrel for barrel. Ideally, they will also need to find new sources of light, sweet crude oil.

Other regions of the globe producing high-quality crude oil include Nigeria, Angola, Algeria, the North Sea and the region surrounding the Caspian Sea. Most of these regions aren't exactly politically stable either.

One definite trend that will continue for the foreseeable future is that the bidding for high grades of crude oil by oil companies will further raise prices for the kinds of high-quality crudes that underpin benchmark oil futures contracts. It most likely will also reduce fuel output from refineries unable to afford the higher prices.

As mentioned earlier, this is happening at precisely the time when demand for low-sulfur oil is increasing. This has raised fears of a repeat of 2008, when oil prices moved above $145 a barrel.

Two factors though may prevent oil from reaching those lofty levels, at least for now.

The first is that since 2008 refiners have invested hugely in turning barrels of heavy oil into light products. Global refinery distillation capacity is also up 3.3 million barrels per day since 2008 to 92.5 million barrels a day.

Oil inventories in developed countries are also higher than levels were in December 2007. In the United States, the 727 million barrel strategic oil reserve contains 293 million barrels that are low in sulfur.

However, due to the spreading unrest in North Africa and the Middle East, oil prices will not move back to $75 a barrel anytime soon. The turmoil is particularly unsettling in Bahrain, because of its proximity to Saudi Arabia and the presence of a major US Naval base there.
Add Why+Libya+Is+Important+to+Oil+Prices to Twitter Add Why+Libya+Is+Important+to+Oil+Prices to Facebook Add Why+Libya+Is+Important+to+Oil+Prices to MySpace Add Why+Libya+Is+Important+to+Oil+Prices to Del.icio.us Digg Why+Libya+Is+Important+to+Oil+Prices Add Why+Libya+Is+Important+to+Oil+Prices to Yahoo My Web Add Why+Libya+Is+Important+to+Oil+Prices to Google Bookmarks Add Why+Libya+Is+Important+to+Oil+Prices to Stumbleupon Add Why+Libya+Is+Important+to+Oil+Prices to Reddit



 



RSS | Related Articles | Editor's Picks Articles | Top Ten Articles | Previous Features | Site Map




For FREE email updates, subscribe to the Investing Newsletter


Past Issues


print
Printer Friendly
bookmark
Bookmark
tell friend
Tell a Friend
forum
Forum
email
Email Editor


Content copyright © 2014 by Tony Daltorio. All rights reserved.
This content was written by Tony Daltorio. If you wish to use this content in any manner, you need written permission. Contact Sandra Baublitz for details.

g


g features
Learn from Investing Mistakes

Your Assets and Liabilities

Retire Early Book Review

Archives | Site Map

forum
Forum
email
Contact

Past Issues
memberscenter


vote
Poetry
Daily
Weekly
Monthly
Less than Monthly



BellaOnline on Facebook
g


| About BellaOnline | Privacy Policy | Advertising | Become an Editor |
Website copyright © 2014 Minerva WebWorks LLC. All rights reserved.


BellaOnline Editor