The Libyan revolution is not about oil and gas. But a new government will want production to increase soon: in peaceful times those commodities produced one-quarter of the country’s gross domestic product. Oil buyers should be almost as enthusiastic, even though Libyan output contributed only 2 per cent of global production last year. As with any commodity, small changes in oil output can have a big influence on prices.
Libya’s lost production was made up by Saudi Arabia. But the oil price is influenced by the industry’s spare capacity as well as its total supply. The latter was thin before the Arab spring (Libya is by far the largest producer affected): Opec’s spare capacity was a little more than 5 per cent of annual production. The ratio has since fallen by more than one-quarter, says Deutsche Bank.
The low number makes customers nervous and encourages them and speculators to pay up for larger inventories than suitable in a better supplied market. The fear of a genuine shortage probably accounts for some of the one-quarter increase in the price of Brent since the regional turmoil began.