Libya's state-owned National Oil Corporation (NOC) declared force majeure on operations at its biggest oilfield late Monday night amid a stand-off with armed protesters, expecting a loss of 315,000 barrels per day (bpd) for the OPEC member.
The protest group, known as the Fezzan Rage Movement, shut down the El Sharara oil field in Libya's impoverished southwest earlier this month with the help of security personnel the Petroleum Facilities Guard, a militia known for its clashes with the Islamic State. The movement of tribesmen is demanding better services, health sector support, monetary stimulus for the southern region and better protection from the government, which it claims has marginalized those living in Libya's south.
But while oil prices saw a slight rebound of about 2 percent one week ago on news of the shutdown, crude output from the U.S. is so high it's practically drowned out what would otherwise be a notable disruption in the oil market. Brent crude was trading at 58.54 at 2 p.m. London time on Tuesday, down 1.8 percent on the previous day.
"In terms of the impact on prices, at present it is struggling to overturn the prevailing bearish bias," Stephen Brennock of PVM Oil Associates told CNBC on Tuesday. However, he noted, "any further unexpected outages could inject some much needed bullish impetus into the oil complex."
Oil prices have fallen some 30 percent since hitting year-highs in October on concerns of global oversupply and slowing demand growth. The Energy Information Agency (EIA) projects U.S. shale oil output to top 8 million bpd by the year's end and average a record 12.06 million bpd in 2019.
While the crisis does heighten geopolitical risk, said Ehsan Khoman, head of Middle East and North Africa research at MUFG, "markets remained focused on the more structural concerns that U.S. oil production growth is well north of, and expected to stay, above global demand growth heading into 2019."
Libya's NOC said that production at El Sharara will only restart after "alternative security arrangements," the Monday statement said, without elaborating.