Middle East, Sudan turmoil cuts into world oil supply

Tue Jul 30, 2013 8:45am EDT

* Protests curb Libyan output, S. Sudan shutdown threatened

* Violence, technical snags in Iraq hold back supply

* Outages support benchmark Brent crude price

By Alex Lawler

LONDON, July 30 (Reuters) - The fall of Middle East tyrannies and renewed conflict there have squeezed oil supply, returning the region's politics to the fore as an energy worry for the world.

Oil outages in Iraq, South Sudan, Libya and Iran are combining to help keep oil prices well above $100 a barrel, partly countering the rise in U.S. shale oil supply and concern about the strength of Chinese demand.

"Geopolitics are firmly back on the radar," said Soozhana Choi, analyst at Deutsche Bank. "This is occurring against a backdrop of North Sea field maintenance and strong refinery demand for crude oil."

Disruptions in the Middle East and North Africa arise as supply from the North Sea is undergoing a heavier-than-usual spell of summer maintenance and as the flow of Russian Urals crude to Europe has fallen with more heading to China, further tightening supply at a time of higher seasonal demand for crude.

Supply losses are over 700,000 barrels per day (bpd) according to Reuters calculations and industry sources and could reach 1 million bpd - 1.1 percent of world output - if South Sudan goes ahead with a threatened shutdown of its production.

"Production is currently underperforming and significantly so," said David Hufton of oil brokers PVM. "Being an oil bear is a tough existence in the short-term trading world."

The supply losses are boosting prices. Benchmark Brent crude futures traded just above $107 a barrel on Tuesday, up from its 2013 low of $96.75 reached in April.

The first-month Brent contract is trading 85 cents above the second month, up from 51 cents on July 1, showing a rising price of oil for immediate delivery. LCOc1-LCOc2

LIBYA, IRAQ

Libya's production recovered rapidly after being virtually shut down during the 2011 revolution. But it has struggled to maintain output near its normal rate due to worker protests at oilfields and terminals.

Output is around 1.25 million bpd, down 150,000 bpd from a year ago, according to industry sources. Workers at Libya's largest oil refinery, Ras Lanuf, have gone on strike, shipping and trading sources said on Tuesday.

Iraq, last year the world's fastest-growing oil exporter, has failed to grow its output so far in 2013. Iraq's Sunni insurgents are targeting its northern pipeline, while technical problems in the south have also weighed on supply.

Oil exports from Iraq have averaged about 2.25 million bpd so far in July, according to oil shipping figures monitored by Reuters, down 270,000 bpd from shipments of 2.52 million bpd in July 2012.

OPEC member Iraq's faltering progress has easing pressure on Saudi Arabia and other Gulf members of the Organization of the Petroleum Exporting Countries to make big cuts in output to prop up prices, sources in the group say.

A further OPEC producer, Iran, is also struggling.

U.S. and European sanctions over its nuclear programme are keeping its oil output down at around 2.6 million bpd, well below its potential. Iran produced 2.9 million bpd in July 2012, according to the International Energy Agency.

Iranian exports, at about 1.1 million bpd, are about half of their level in early 2012.

And a row between Sudan and South Sudan over allegations of rebel support is threatening to close pipelines carrying South Sudan's oil, taking outages from the four countries towards 1 million bpd.

South Sudan has started to close some of its production, which was most recently estimated at 180,000 bpd. But Sudan last week postponed the shutdown of the pipelines for two weeks to allow more time to end the dispute.

"It lends underlying support," said Carsten Fritsch, analyst at Commerzbank in Frankfurt of the various outages, although concern about South Sudan has eased. "The situation in South Sudan improved somewhat. So it is not yet clear if they will really shut down production." (Editing by William Hardy)

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