Libyan rebels promise oil exports, but Western traders still leery of lining up

The Libyan rebel coalition in Benghazi said Monday that it was open for oil business, claiming that it had struck a marketing deal with Qatar and that it was eking out about 100,000 barrels a day of petroleum production from fields under its control.

But Western oil traders, analysts and companies said that no tanker had dared to go to pick up oil for two weeks, citing the allied blockade, sanctions, a lack of insurance and uncertainty about whether the rebel coalition could win international recognition as Libya’s legitimate government.

“I am not sure anyone in the oil industry is quite willing to touch it,” said a major European buyer of oil products who asked for anonymity to protect his business relationships. “It’s going to be very difficult to get things going.”

“Nobody’s lifting,” said a senior executive at another major European oil company.

Over the past few days, rebel forces have recaptured key coastal towns, leaving them in control of all five eastern oil export terminals, including Es Sider, Ras Lanuf and Zuwaytinah. The terminals account for about two-thirds of Libya’s export capacity, said a report by the Eurasia Group, as well as a majority of its production and refining capacity.

But Western oil experts said the rebels will need to repair damaged export facilities, convince skilled oil field workers to return to work and establish financial channels. And that’s assuming they can make further gains in the ground war.

“I genuinely don’t think they have a lot of oil fields under their belt,” said Amrita Sen, a London-based oil analyst with Barclays Capital. “They claim control over the Sirte basin, but they were stopped 18 miles from the Sirte basin, which is a long way.” She said that the Sirte basin accounts for two-thirds of Libya’s oil output, and without control of those fields, the exports won’t reach full capacity.

Oil prices were little changed on Monday, falling 55 cents, to $103.43 a barrel for May delivery in the New York Mercantile Exchange.

On Sunday and Monday, the rebel council, badly in need of money for armaments and food, tried to get business going. It announced that foreign companies could make payments through the Bank of Benghazi. Ali Tarhoni, the Benghazi council’s head of oil, economy and finance, said shipments could resume in a week, according to news agencies.

But a report by the Eurasia Group in Washington said that the Benghazi council doesn’t have clear title to the oil and predicted that the rebel group “would likely get little traction with buyers.”

Moreover, the United Nations sanctions resolution, which banned payments to the Libyan National Oil Corp., has no exemption covering exports from subsidiaries under rebel control, the Eurasia Group report added. The Treasury Department Office of Foreign Assets Control’s list of subsidiaries subject to sanctions includes Arabian Gulf Oil Co. (Agoco), the eastern operating unit of the national oil company.

Though the Benghazi council claimed that Qatar would market oil from the eastern part of the country, analysts were skeptical, noting that Qatar had not confirmed those claims. However, the Qatar News Agency said that the country had recognized the rebel council as the “sole legitimate representative of the Libyan people.”

Sen, the Barclays analyst, said that the only possible customer for oil from Benghazi would be a French company if the French government, which has recognized the rebel group, agrees to provide insurance in order to make a statement of economical as well as political support.

“The French may be the exception, but it can’t be the norm,” she said.

International oil companies that hope to have a sustained relationship with Libya are also holding back because the outcome of the civil war remains uncertain.

Eni chief executive Paolo Scaroni told an Italian parliamentary commission earlier this month that sanctions amounted to “shooting ourselves in the foot.” He later told Dow Jones he only meant that they would cut natural gas supplies for Italy and reduce energy security. Italian oil giant Eni is the largest foreign investor in Libya and operates fields with a third of Libya’s former output.

Traders and analysts weren’t sanguine about a quick resumption of Libyan oil exports. While less than 2 percent of world oil output, those exports equal about a third of the global surplus production capacity, and Barclays Capital said that the loss of Libyan oil will continue to prop up prices.

A de facto partition of the country would mean a “quite slow movement toward a resumption of some exports,” the Eurasia Group said, assuming that the Benghazi council gains more formal recognition. It said a quick rebel victory at Sirte could mean a partial resumption of exports within two months. More likely, exports of substantial volumes of oil will be delayed for three to six months, the report said, and “a return to full output will take substantially longer.”

Steven Mufson covers energy and other financial news.
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