Image:
Bebeto Matthews  /  AP
Traders of crude oil and natural gas at the New York Mercantile Exchange. Oil retreated Tuesday as OPEC ministers discussed whether to ramp up production in the wake of the Libyan uprising.
msnbc.com news services
updated 3/8/2011 3:50:48 PM ET 2011-03-08T20:50:48

Oil Prices retreated Tuesday as OPEC ministers discussed whether to ramp up oil production in the wake of the Libyan uprising.

U.S. crude oil futures settled at $105.02 a barrel in trading on the New York Mercantile Exchange, down 42 cents. In London, Brent crude dropped $2.79 to $112.25 per barrel on the ICE Futures exchange.

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"We are in consultations about a potential output increase but have not yet decided," Kuwait Oil Minister Sheikh Ahmad al-Abdullah Al-Sabah told reporters Tuesday.

The Libyan crisis has forced companies to evacuate workers, and most of the country's 1.6 million barrels of daily production has been shut down. Boosting production elsewhere would likely cool off overheated energy prices, but experts warn that doing so would weaken OPEC's ability to manage global supplies later this year.

Michael Lynch, president of Strategic Energy & Economic Research, said it also won't address the basic fear that has been pushing oil prices higher for the past few weeks.

The main concern isn't whether the cartel can replace Lybia's daily exports. It's whether the governments of Saudi Arabia and Iran and will change in the wave of pro-reform uprisings that already have ousted leaders in Egypt and Tunisia. Raising production now "would have a minor calming effect on the market," Lynch said. "Other than that, it's not going to take us back below $100" per barrel.

Many OPEC producers are skeptical that raising output would help the oil markets, saying world supply is comfortable despite the loss of Libyan crude.

Story: Yes, the world still has plenty of oil, but ...

The fighting in Libya has shut down about two thirds of the oil output in Africa's third-largest producer. The OPEC member normally pumps 1.6 million barrels per day, or about 2 percent of world output.

While OPEC has not changed its formal policy for more than two years, it has been boosting actual supply for months. Saudi Arabia said Tuesday the world had sufficient oil and it held enough in reserve.

"The kingdom has 3.5 million barrels a day of spare capacity which could help compensate for any shortages," Saudi oil minister Ali al-Naimi said in remarks carried by Saudi state news agency SPA.

The Associated Press and Reuters contributed to this report.

Explainer: Overview of Libya's oil resources

  • Image: A Libyan oil worker, works at a refinery inside the Brega oil complex
    AP

    OPEC member Libya is the 17th largest producer in the world, third largest producer in Africa and holds the continent's largest crude oil reserves. It normally pumps around 1.6 million bpd, 85 percent of which is exported to Europe and its output is equivalent to about 2 percent of global oil consumption.

  • Libya's place in the oil producing world

    How the country measures up in crude supplies and production.

  • Exports

    Before the war, Libya was a net exporter with domestic consumption estimated at only around 270,000 bpd.

    Europe was most affected by Libyan oil export disruptions. About 28 percent of Libya's oil went to Italy, 10 percent to Germany, 11 percent to China and France and 3 percent to the United States.

    Libyan oil accounted for about 23 percent of Ireland's oil and about 22 percent of Italy's, according to the IEA.

    Around 13 percent went east of the Suez Canal to Asia.

    The shortfall from the loss of Libyan output was covered by alternative sources such as Nigeria and Azerbaijan, which produce similar light crude oils to Libyan oil.

    Saudi Arabia also brought some it its spare capacity online, according to Saudi sources. The kingdom promised to fill any supply gap caused by the unrest in Libya although it produces heavier crude with higher sulfur content than Libya.

  • Infrastructure

    Reuters

    Oil fields
    Most of Libya's oil fields are located in and around the Sirte Basin, in the northeastern part of the country, which contains around 80 percent of the country's proven reserves.

    Other key areas include the Ghadames Basin, about 240 miles south of Tripoli and Cyrenaica Basin in the northeast and the Murzuq oil field in the desert in the south of the country.

    Libya has five domestic refineries with a combined capacity of 378,000 barrels a day:

    Azzawiya Oil Refining Co
    Sarir Refining
    Sirte Oil Co
    Tobruk Refining
    Ras Lanuf Oil & Gas Processing Co

    Ports
    Libya exported various grades of light crude from six major terminals, five of which are located in the eastern part of the country, where protests erupted near the second city of Benghazi.

    Following are the eastern terminals with pre-war loading volumes in January, 2011 provided by the IEA.

    Es Sider 447,000 barrels per day
    Marsa El Brega 51,000 bpd
    Ras Lanuf 195,000 bpd
    Tobruk 51,000 bpd
    Zueitina 214,000 bpd
    Zawiyah 199,000 bpd (January exports)
    Oother unspecified terminals 333,000 bpd

  • Companies

    Image: Libyan oil worker, works at a refinery inside the Brega oil complex
    AP

    Libya's state company
    Under the Gaddafi regime, Libya’s oil industry was run by the state-owned National Oil Corporation (NOC), which was responsible for managing exploration and production sharing agreements with international oil companies. Along with smaller subsidiary companies, the NOC accounted for around 50 percent of the country's oil output.

    Foreign players
    Major oil companies operating in Libya include:

    BP (Great Britain)
    ConocoPhillips (United States)
    Eni (Italy)
    ExxonMobil (United States)
    Hess Corp (United States)
    Marathon (United States)
    Occidental Petroleum (United States)
    OMV (Austria)
    Repsol (Spain)
    Shell (United States)
    Statoil (Norway)
    Wintershall, a unit of BASF (Germany)

Photos: Gas Turmoil

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