Libya's Oil Upheaval

Keith Kohl

Written By Keith Kohl

Posted February 23, 2011

**Editor’s Note Update: Be sure to read editor Keith Kohls’s up-to-date resource page on Brent crude oil prices.

It can’t get much worse, can it?

That’s how I first felt after watching crude top $111.85 per barrel today. It was hard to imagine Brent prices climbing much higher… and then the news hit my desk.

When I read half of Libya’s oil production had been shut down after the latest unrest, I couldn’t help but wonder how much further the volatility could take prices.

As you know, Libya is the 12th largest crude exporter in the world. The country usually pumps out 1.6 million barrels per day (bbls/d). Some have even suggested as much as one million bbls/d may have been disrupted – approximately 62% of total output.

Libya’s oil exports aren’t the only thing threatened; three-quarters of the country’s energy consumption is from oil, and the rest from natural gas.

Of course, the IEA is expecting OPEC to make up the loss, yet Bloomberg recently reported that OPEC oil exports fell 2% in December. I’m guessing OPEC is “comfortable” with $111 a barrel. After all, that’s their famous tagline, isn’t it?

Brent bearing the brunt of risk

I’ve mentioned before how Brent crude is overtaking – or overtaken, for that matter – light, sweet Texas crude as the world’s benchmark for crude prices.

With the latest volatility stemming out of North Africa and the Middle East, don’t expect Brent crude to fall. Since much of Libya’s oil exports flow through Europe, you can see the response on Brent prices:

Brent crude 1 week
Is big oil in big trouble?

You know things haven’t been too good for big oil lately.

And here are just some of the headlines over the last few years that tell their tale:

  • Italy’s Eni SPA is currently evacuating Libya as the unrest continues. What’s at stake? Eni produces approximately 250,000 barrels per day in Libya, or roughly 14% of their total production.

  • Equador is ordering Chevron to pay almost $9 billion and wants an apology for the environmental devastation it caused in the region. The decades-long court battle stems from Texaco, which was purchased by Chevron for $36 billion back in 2000. The country claims the company deliberately dumped billions of gallons of waste byproduct from oil drilling into the rivers and streams of the rain-forest.

  • In 2007, Venezuela’s Chavez ousted all International Oil Companies (IoCs) during his May Day takeover – a decision he’ll soon regret considering how difficult it will be to extract the country’s heavy resources located in the Orinoco Belt.

  • We all know the fallout of BP’s infamous oil spill in the Gulf of Mexico, which will cost the company billions; Not to mention the denigrating effect the disaster has had on the future of offshore drilling.

Investing disasters

So, you think those IoCs have it tough?

Just imagine how their investors have felt over the last year:

IoC performance

As you can see, they haven’t had much to smile about.

In fact, out of those investments above – if you can call them that – only Chevron has managed to sneak by with a gain. The others were about as depressing as Libya’s oil output.

A boom worth the buck

There’s another reason for the discount between WTI and Brent crude, and it’s also why some investors have made a small fortune.

Now I’ve talked before about the surge in production from the Midwest, specifically the now-famous Bakken oil formation, as well as increasing imports from Canada.

But no matter what your stance on the U.S. oil industry, you have to see the boom taking place…

Three weeks ago, I pitted those Bakken producers against the supermajors. Now compare their success with those holding onto those IoCs (from above) with blind faith that big oil will pull it together. How are they performing compared to those IoCs over the same period?

I’ll let their success speak for itself…

Bakken Profits EAC

As you can see, it doesn’t take much to know where you’d rather place your bets. And once you recognize where those profits are coming from, you’ll see an even greater opportunity in taking those investments to the next level.

Take those shale plays above, for example.

Increasing efficiency will inevitably boost production. One of the technologies used today, known as hydraulic-fracturing, is coming under harsher scrutiny with each passing day. My readers are already one step ahead of the game after discovering one company perfecting it’s new ‘petro-frac’ technology.

Until next time,


Keith Kohl
Editor, Energy and Capital


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