Oil industry worries Libya unrest could spread

The first major protests to hit an OPEC country put the oil industry on edge Monday, sending crude prices jumping and raising speculation about the use of emergency oil reserves that have only been touched twice in two decades.

In addition to Libya, the industry is closely watching protests in Algeria, Bahrain and Iran, the second-largest crude exporter in the OPEC behind Saudi Arabia.

"The concerns in the market go beyond Libya," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "It's unlikely we're going to see any meaningful disruption of oil from the Middle East or North Africa, but the spread of this unrest has raised anxieties."

Libya is more important to the oil industry than Egypt or Tunisia, scenes of the previous upheaval in North Africa. Oil passes through Egypt, where protesters recently forced out longtime ruler Hosni Mubarak, but Egypt is not an oil exporter. Tunisia is a minor exporter.

Bahrain is not a big oil exporter either, but it has some political similarities to Saudi Arabia, which sits atop the world's largest reserves of conventional crude.

Libya exports some 1.1 million barrels of crude a day from production of 1.6 million barrels — ranking it about 17th among world oil producers. And it has the largest proven oil reserves in Africa.

The United States, the world's largest consumer of oil, does not import any petroleum from Libya. But disruptions elsewhere can raise the price of oil worldwide.

Even more worrisome for oil markets is the potential for instability to spread to other countries in the Organization of Petroleum Exporting Countries, especially Saudi Arabia and Kuwait.

"The elephant in the room that has the potential to really ignite the markets is Saudi Arabia," said senior commodity analyst Edward Meir at MF Global in New York.

Oil prices jumped Monday to $8.05 a barrel, or 9 percent, with benchmark crude for April delivery at $97.76 in electronic trading on the New York Mercantile Exchange. Regular trading in U.S. markets was closed for the Presidents Day holiday.

Some in the industry had their eye on world oil reserves that can be tapped if production is threatened or curtailed. The reserves have only been opened twice — after Hurricane Katrina in 2005 and the first Gulf War in 1991.

David Fyfe, head of the oil industry and markets division at the International Energy Agency, said the agency's member countries have reserves of 1.6 billion barrels of oil — equivalent to the amount of crude the U.S. imports in almost six months.

The agency's members are mainly oil-consuming industrial nations such as the United States, Japan, Britain and Germany.

Using government oil supplies to stabilize the oil market is "very much a last resort, but it's worth pointing out that it exists and has been used before when supplies have been disrupted," he said.

U.K.-based BP and Germany's Wintershall temporarily suspended operations in Libya on Monday, while Italy's Eni said production continued normally. Some firms also began evacuating foreign employees.

Among U.S. oil companies, ConocoPhillips and Marathon Oil Corp. each have a 16 percent interest in an oil drilling operation in Libya, with almost 60 percent held by Libya's state-run oil company. ConocoPhillips spokesman John McLemore said the company is monitoring the situation but had no comment on the security of its workers there.

Marathon said it has evacuated dependents of expatriate workers and was "taking the necessary steps to ensure the safety and security" of those who remained. The company said it was not aware of any disruptions to production.

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