by David Fessler, Investment U’s Energy and Infrastructure Specialist
Friday, April 1, 2011: Issue #1482
In a move that perhaps best underscores the progress of the Libyan rebels – and dishes the biggest slap in the face to Muammar Gaddafi – the rebel council announced earlier this week that Qatar plans to buy oil from its facilities in Libya.
According to Ali Tarhoni, the rebels’ representative for economy, finance and oil, Qatar’s national oil company has agreed to take all the oil that the rebels can produce, currently between 100,000 and 130,000 barrels per day (bpd).
What’s more, Tarhoni said that not only could exports begin within a week, the rebels could easily raise production to 300,000 bpd.
And while that’s a far cry from the 1.6 million bpd that Libya was pumping prior to the upheaval, the symbolism of this development is perhaps greater than the actual oil itself. Why?
Qatar Deal Strengthens the Libyan Rebels’ Hand
While Qatar Petroleum didn’t comment officially on the report, Qatar is the latest country to recognize the rebel council as the legitimate representative of the Libyan people.
Qatar’s state-run news agency cited a Qatar Foreign Ministry official: “This recognition comes from a conviction that the council has become, practically, a representative of Libya and its brotherly people.”
Rebels now control five of Libya’s six oil terminals. Only one remains in the hands of forces loyal to Gaddafi – the Zawiya terminal.
Industry expert opinions differ as to the significance of the Qatar deal. But since Tarhoni signed the contract with Qatar to ensure “access to liquidity in terms of foreign-denominated currency” – i.e. U.S. dollars – the deal will…
- Provide money for the rebels to finance arms purchases.
- Provide funds that will go towards restoring power.
- Allow for necessary infrastructure repairs to cities and towns destroyed by troops loyal to Gaddafi.
On the flip side, however…
Not All Crude Oil is Created Equal
There are still a large number of pro-Gaddafi loyalists and while they remain, Libya’s oil pipelines remain highly vulnerable to sabotage.
The real problem, however, is that workers from foreign oil companies that were previously operating a large portion of Libya’s oil industry have fled the country amid the turmoil. And they won’t exactly flock back until it’s clear that Gaddafi is out of the picture.
As it is, with Libya’s oil fields shut down for the better part of a month now, that’s obviously putting a strain on global oil networks, as Libya boasts some of the sweetest crude oil in the business.
Trying to replace it with similar oil isn’t easy, either, as few other sources of similar quality exist. For example, Saudi Arabia’s oil is much heavier and requires more complex refining, which drives up the cost of the finished product.
Combat High Gasoline Prices With These Stocks
The end result is that with Libyan light sweet crude likely off the market for some time, it could force refineries to switch to refining lower quality crude. That will mean lower profits for the refiners and continued high gasoline prices at the pumps.
The Energy Information Administration (EIA) warned that if the Libyan crisis continues, “it could conflict with a seasonal ramp-up in refinery production ahead of the peak summer driving season.”
Translation: Oil prices could rise even more.
So to protect yourself as both a consumer and profit as an investor, make sure your portfolio has some exposure to some of the large independent producers and explorers like Anadarko Petroleum Corporation (NYSE: APC), Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX).