Fresh violence in Libya could provide new shock to oil markets

MAHMUD TURKIA | AFP | Getty Images

Forces loyal to Libya’s UN-backed unity government arrive in Tajura, a coastal suburb of the Libyan capital Tripoli, on April 6, 2019, from their base in Misrata.

DUBAI — A resurgence in fighting around the Libyan capital of Tripoli this week has driven U.S. forces to pull out of the country and is providing a new upside risk to global oil prices, underscoring the OPEC producer’s importance to markets and the fragility of its supply.

Rebel forces loyal to renegade General Khalifa Haftar, who effectively controls the country’s breakaway east, launched a surprise offensive against the home of Libya’s UN-recognized government last week in a move that risks plunging the country back into civil war.

“The Libyan conflict coming back onto the front of the mind of the marketplace is actually very significant right now,” Dave Ernsberger, global head of energy at S&P Global Platts, told CNBC in Dubai on Monday.

“We’ve seen Venezuelan production fall of a cliff, we’ve seen already inventories against the five-year average move into more bullish levels, so the fact that there might be a lack of Libyan supply to the market is potentially a bit of a shock right now.”

The looming conflict follows a surge in crude futures in recent months on the back of tightening supply, with global benchmark Brent and U.S. West Texas Intermediate (WTI) both rallying more than 20 percent since the start of 2019.

Brent crude stood at $70 a barrel on Monday, with WTI trading at around $63.

A 75-year-old general who holds American citizenship, Haftar was formerly a Gadhafi ally but returned to Libya in 2011, after years in the U.S., to join the NATO offensive that toppled the dictator.