OPEC at Highest Production Since 2008

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A Bloomberg survey showed OPEC production increased +75,000 bpd to 30.055 mbpd in September. That is the highest level since November 2008.

With Libyan production restarting and the first tanker of oil sold last week to Conoco we can expect those production numbers to rise again. With Brent crude still trading over $100 it is very profitable for OPEC producers today. They will not be in a rush to cut production.

The first tanker load out of Libya was 381,000 barrels that was used to pay Vitol for refined products shipped in during the civil war. Vitol sold it to Conoco for use in a German refinery.

Analysts are split on how quickly Libya can rebuild production. The majority of foreign contractor have not returned to the oil fields because of the security problem. Several were mined by Gaddafi forces as well as the Brega oil center.

Many of the oil majors have sent a few teams to research the damage and decide how best to restart production but the workers are still absent. Conoco, Hess, Statoil, Occidental, Apache and others have major projects and assets in Libya. Most has said they will not return their workers until the situation is stable and fighting has ended. That is still not the case.

Most analysts believe Libya can restart 385,000 bpd within 90 days after the fighting ends. After that first level is reached the outlook begins to blur. Many installations have reported damaged equipment and quite a bit of it was stolen by Libyans. Many inspectors have reported large orders for new equipment that could take many months to replace.

A large weapons cache near Sirte is causing a serious problem for planners. In dozens of unguarded warehouses there are weapons stacked to the ceiling. Crates of Soviet era guided missiles are stacked to the ceiling. There are piles everywhere of crates labeled "warhead." Artillery rounds, rockets, antitank grenades and projectiles of all calibers are piled so high they defy counting. There are dozens of warehouses stretched several miles across the desert 100 miles from Sirte. The U.S. claims there is an estimated 20,000 man portable surface to air missiles left behind by Gaddafi that could fall into the hands of terrorists and threaten commercial airliners.

Convoys of armed groups from all over Libya have made the trip there to pillage as many weapons as they can carry. The looted weapons are loaded into trailer trucks, dump trucks, buses, pickups and even empty grocery delivery trucks. Many of these groups are from competing tribes and factions. These factions are arming themselves in anticipation of future conflicts. These conflicts could represent problems for oil workers caught in the crossfire.

Officials are also worried that many of the weapons are being gathered up for sale to terrorists. They are very active on the black market for any weapon that can be turned into an IED. Libya has not yet turned into Iraq but with more than 140 tribes that Gaddafi kept hostile to one another throughout his rein to prevent an uprising against him, this could be a major challenge to getting all 1.6 mbpd of production restarted.

On a visit to the site his week by The Wall Street Journal, no guard or security of any sort was visible. Ammunition cases, numbering in the thousands, lay spread for miles on the desert floor outside the warehouses. A Western security contractor who examined photographs of the storage site estimated it contained enough ammunition to enable "an insurgent or an al Qaeda-type group to wage a ground-to-air war" and sufficient explosives to plant roadside bombs every 10 miles along Libya's 1,100-mile coastline.

Jim Brown

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