But that may be only a short-term fix in managing prices if Libya's problems persist, as markets will likely grow jittery about dwindling spare capacity.
Efforts to devise a more coordinated effort by the Organization of Petroleum Exporting Countries to plug the Libyan shortfall have failed, as key cartel members such as Iran balked.
Saudi Arabia heeded an earlier pledge to make more oil available if needed by increasing its production to nine million barrels a day. That milestone has now been reached, Saudi officials said Sunday.
One Saudi official said that level represented an increase of 500,000 to 600,000 barrels a day compared with Saudi production before the Libya disruptions. Saudi Arabia, the largest producer in OPEC, normally holds two-thirds of the group's spare capacity, at 3.5 million barrels a day, according to the International Energy Agency. The IEA estimated last week that anywhere between a third and half of Libya's 1.6 million barrels a day may be shut down.
The weekend offered a mixed bag of news before markets reopen Monday. Libya's state-owned Arabian Gulf Oil Co., or Agoco, which operates in an area held by the opposition, was resuming shipments, though it said it was producing 170,000 barrels a day compared to a capacity of 420,000 barrels a day.
Elsewhere in Libya, there were problems. According to a company official, the 220,000-barrel-a-day Ras Lanuf refinery, in another part of Libya, declared force majeure on all its operations because of a halt in crude flows. A declaration of force majeure offers legal protection to suppliers in case they can't guarantee deliveries.
The problems have set up a scramble to bring in more oil from elsewhere. Refiners in Europe had initially scoured the market for supplies once seen as either risky or unreliable, from Nigeria to Iran. But they found most producers already stretched.
"We have received expressions of interest" from European companies to provide extra barrels as a substitute to Libyan crude, an official at Nigerian National Petroleum Corp. said. Asked if the company had any tankers to offer in response, he said, "None."
OPEC itself has faced internal disagreements over how to address the Libya shortfall, with Iran playing a pivotal role. Ahmed Galebani, head of the National Iranian Oil Co., said Friday that "demand for Iran's oil has increased," according to Iran's Mehr news agency. But Iran, which has struggled to maintain production amid sanctions, only has 40,000 barrels of spare capacity, according to the IEA.
Most importantly, the Islamic Republic, which holds OPEC's presidency, has repeatedly said it is unwilling to support a coordinated move to increase production for now. Iran's OPEC governor, Muhammad Ali Khatibi, said "there is no shortage in the market" because OPEC was producing more than demand for its crude prior the disruptions. Asked if OPEC should consider an emergency meeting over the Libya disruptions, Mr. Khatibi said: "We need a stable situation to analyze supply and demand, before we can judge. The situation is changing so fast."
The Saudis may only be able to offer a short-term cushion against a new oil spike, as a drop in available spare capacity could push prices back up.
According to a 2009 analysis by Bernstein Research, when spare production capacity diminishes, prices tend to rise because markets are more fearful of unexpected supply disruptions. OPEC's current spare oil production capacity, which is most of the world's spare capacity, is just over five million barrels a day of crude, or 5.8% of expected 2011 oil demand, according to IEA data.
If Saudi Arabia fully compensates for the lost Libyan supply, that supply cushion would fall below 5% again. In 2008, a previous Saudi effort to balance the markets amid tight supply showed its limits. In June 2008, the country agreed to increase daily oil production by 700,000 barrels a day to 9.7 million barrels. Two months later, oil prices spiked to a record high, exacerbating a global recession. For the latest updates PRESS CTR + D or visit Stock Market news Today
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