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, and the thin trading volumes had the potential to amplify price fluctuations.
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.
Fyfe said there are differences between now and the last time the world experienced widespread oil shortages and price increases, in 2008, including more spare capacity and greater OPEC production.
J.P. Morgan analyst Lawrence Eagles wrote in a note to investors that history shows that political turmoil does not necessarily hurt the flow of oil.
"Any government in an oil-producing country will ultimately need the revenue from oil production," he wrote. "As such, there is a natural tendency for oil flows to continue over time."
American oil companies were barred from doing business in Libya until the U.S. lifted its embargo in 2004. Since then, contracts between Libya and foreign oil companies have been frustrating for both sides, said PFC Energy analyst David Kirsch.
The amount of oil and natural gas discovered has been disappointing, and oil companies have felt that the contracts were not generous enough, given the limited size of new discoveries, Kirsch said.
If the Gadhafi government falls, oil companies may find that the new government demands terms even more favorable to Libya and less favorable to the oil companies, Kirsch 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.
BP evacuated around 40 expatriate staff and their families, halting operations just four years after the company returned to Libya following a 30-year hiatus. In 2007, BP signed a deal worth at least $900 million in 2007 to explore in Libya.
The company said it would monitor the situation on a daily basis, but stressed that offshore operations in the region were still open and that the closure would not effect current production.
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 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.
Occidental Petroleum Corp., the first American company to resume operations in Libya when the U.S. government lifted sanctions, did not immediately return a call seeking comment. Last year, Occidental produced 13,000 barrels of oil, gas and liquids per day in Libya.
Exxon Mobil Corp., which has licenses for offshore drilling near Libya but no active drilling now, said it did not discuss security matters.
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