Aug. 31 (UPI) -- With a loss from missing oil revenue, the closure of Libyan oil fields by militants is thwarting economic progress in the country, an oil director said.
The Libyan National Oil Corp. said force majeure, a contractual condition related to circumstances beyond the control of the parties involved, was declared for production at three oil fields. The NOC said militants had shut in more than 360,000 barrels of oil per day in the west of the country at a cost of hundreds of millions of dollars.
"This is a national tragedy," NOC Chairman Mustafa Sanalla said in a statement. "Our production was recovering, not quite enough to balance the budget, but enough to give us hope that our financial position could stabilize."
The shut-in equates to about 35 percent of total Libyan crude oil production. A member of the Organization of Petroleum Exporting Countries, the country is exempt from an effort to counter an over-supplied market through production declines because of national security issues.
The Central Bank of Libya in early August expressed its support for further coordination with the NOC. Sanalla said oil operations help offset a federal deficit and cut in to the depletion of savings at the Central Bank, but now that effort was eroding because of militant activity.
Libyan production before the most recent militant activity had passed just over 1 million barrels per day, though that's about 60 percent of its full potential. According to the World Bank, revenue from oil won't be enough to cover budget expenses. The budget deficit for Libya is expected to be around 19 percent of its total gross domestic product.
Libyan output has moved in fits and starts for much of the year, though production has been able to recover from setbacks quicker than in the past. Were it not for the deep impact to the U.S. energy sector from Tropical Storm Harvey, Libyan outages would have a big market impact.
Ole Hanson, the head of commodity strategy at Saxo Bank, told UPI most of the "low-hanging fruit has been plucked" from Libyan oil so the downside risk has been reduced.
"On that basis Libya's ability to move markets, especially to the downside on increased production, should somewhat fade over the coming months," he added. "The upside price risks due to disruptions are going to stay for a long time considering the fragile state of the country."