LONDON, Feb 24 (Reuters) - Oil production in Libya is expected to shut down completely and could be lost for a prolonged period of time, Bank of America Merrill Lynch said on Thursday.
“We expect Libyan production to be shut down completely and we might lose sweet crudes from Libya for a prolonged period of time,” Bank of America Merrill Lynch analyst Sabine Schels told Reuters.
Schels said that the world faced the prospect of real supply shock in which the loss of 1.6 million barrels per day of sweet oil could potentially trigger a steep rise in prices and force a sharp reduction in demand to balance the system.
“Some of the supply can be replaced with Saudi light crude and some from SPR, but if the disruption is prolonged, we will need demand to drop to balance the system,” Schels said.
The bank is currently discussing scenarios and outlooks, and will publish a report on its findings in the coming days.
“We already faced a demand shock last year with global demand increasing by 2.8 million bpd and on top of that, what we have now is a real supply shock,” Schels said.
“In a price shock scenario whereby we lose 1.6 million bpd, the rise in prices can be a lot greater than in the case of a demand shock. (Reporting by Jessica Donati; editing by Marguerita Choy)