Forget the strong dollar, flare ups in coronavirus infections or concerns about inflation. Yesterday it was all about the battle between consumers and producers for supremacy. If it were a football game one might say producers are winning one goal to nil and their opponent has scored a rather spectacular own goal – at least this is what yesterday’s price action suggests.

Details of the co-ordinated action of six consumer nations, the US, China, India, Japan, South Korea and the UK, are still sketchy. We are intending to have a deeper look at the unprecedented development in tomorrow’s note, hopefully additional facts will emerge today. Until then, however, this is what we know so far.

The US president has announced the release of 50 million bbls crude oil (mainly sour crude) from the Strategic Petroleum Reverse. 32 million barrels will be an exchange over the next several months, releasing oil that will eventually return to the Strategic Petroleum Reserve in the years ahead, according to a statement from the White House whilst the balance of 18 million bbls is a planned release, which has been brought forward and was already authorized by Congress. We also know that India will contribute 5 million bbls to the total, Japan probably less than that and the United Kingdom will allow 1.5 million bbls privately held oil to be released voluntarily. China, and South Korea have not disclosed their volume and the time frame, in which the extra barrels would be delivered to the market is unclear, too.

The market, however, voted with its dollar and not only outright prices re-gained a significant part of the ground that had been lost over the past month, the front-month Brent spread also rallied more than 30 cents/bbl on the news. The enthusiasm was somewhat dented after the close when the API published its latest stock figures. They showed surprise builds in crude oil and gasoline inventories, but distillate stocks drew by a respectable 1.5 million bbls.

The re-emergence of the Gaddafi clan

The Arab Spring that shook the Middle East and North Africa 11 years ago was a wave of pro-democracy protests against authoritarian regimes. The outcry started in Tunisia and Egypt and swept across the region, over to Yemen, Bahrain, Libya and Syria. Autocratic leaders were not toppled everywhere (just see the political and social catastrophe in Syria) but the popular uprising brought with it hope, not just in the countries involved but in Western democracies, too, that pluralism and autonomy are on the horizon, which will lead to a significant increase in social well-being and economic wealth for entire nations.

History, however, proved optimists wrong. The political vacuum that was created after the removal of despots led to domestic infighting for power and for the riches of the countries. The political instability that is felt up until today in most of these countries has a profound impact on their economies. Nowhere it is better demonstrated that in the North African OPEC member, Libya.

One of the major crude oil producers and exporters of the world has seen much better days from oil’s perspective. The country, whose crude oil production was consistently and reliably just below 2 mbpd during the reign of Muammar Gaddafi suffered a nearly unbearable devastation to its oil output, which plunged to as low as 210,000 bpd, hardly three years after the country’s long-term ruler was killed, although production has stabilized now around 1 mbpd.

Following the fall of Gaddafi, the country was divided into competing political and military factions. The internationally recognized government of Abdul Hamid Dbeibeh seated in Tripoli wrestles for control against Khalifa Haftar, the head of the Libyan National Army, which controls the eastern part of the country. Over the past few years Libya has also acted as a springboard for migrants trying to find a better life in Europe. The Islamic State tried to turn the power vacuum into its own advantage and for a short period of time it occupied several coastal cities.

Finding a reassuring solution to this long-term crisis will be in everyone’s interest and this solution can only come in the form of democratic elections, the result of which will be mutually accepted by all parties involved – domestically as well as internationally. Such an opportunity might come as soon as December 24 when presidential elections are scheduled to be held in the country (and parliamentary elections afterwards). These elections had been originally planned for December 2018 then for early 2019 but these attempts came to naught due to acrimonious disagreements and military operations. At a major international conference in Paris two weeks ago, however, Libyan authorities made commitments to hold presidential elections before the year-end.

If the plan succeeds and the three million Libyans who have registered will be able to cast their votes the outcome might have a significant impact on the country’s main source of export – either way really. The main candidates to run for presidency are the current prime minister Abdul Hamid Dbeibeh, the eastern military commander, Khalifa Haftar and the son of the late dictator, Saif al-Islam Gaddafi, who has been accused of war crimes by the International Criminal Court.

Given the recent and turbulent history of the OPEC producer the elections, if goes ahead, will not be without danger and could actually turn out to be a high-risk event. Whatever the result will be the odds of challenging the outcome remains elevated. Followers of the losing sides can take to the streets and in a country that is flooded with mercenaries the fragile ceasefire between the warring parties could easily end in violence in which the country’s oil production is adversely affected. Relatively stable output might shrink speedily. It would be the last thing the country and the international oil market need. Inflation, the dollar, Covid, loosening oil balance and SPR release are currently in the forefront of market players’ thinking but Libya can once again take centre stage as the scheduled election date approaches.