Our advice to Italy, which imports 425,000 barrels of oil each day from Tripoli: "Panic." Following yesterday's Force Majeure announcement from Libya which meant that oil production and exports will continue only for a few more days, the FT now reports that over half of Libya's production, or about 800,000 barrels is now offline. As Libya accounts for ~2% of global oil exports, this means that 1% of world oil output has just been removed. And to all those who claim that excess OPEC capacity can be easily substituted, sorry it can't - Libyan crude is far higher in quality than the general muck, meaning it is not a simple apples for apples replacement. From the FT: "Industry executives told the Financial Times that at least half of Libya’s 1.6m barrels a day oil output had been closed down. They cautioned, however, that they could only estimate the total outage since they did not have direct knowledge of production at their competitors’ oilfields." And if Nomura's earlier call is correct that a combined Libya-Algeria oil stoppage will result in the doubling of crude prices (and one can only imagine what happens if Saudi is thrown into the fray), then our January call for "higher" oil may lead to some very tidy profits. In the meantime, we expect the partial Libyan oil closure to reach 100% shortly.
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