"Security conditions on the ground need to be guaranteed before foreign and domestic personnel can return to production sites and resume operations," Harry Tchilinguirian, the London- based head of commodity-markets strategy at BNP Paribas SA, said in a note yesterday. "Even if damage were to be limited, we cannot foretell the political stability of the country in the aftermath of the demise of the current regime."

Libyan production slumped to 60,000 barrels a day in July, from 1.7 million in January, according to the Paris-based International Energy Agency. Rebel forces were able to arrange limited international sales at the height of the conflict, including a shipment of crude on the 1 million-barrel tanker Equator, which loaded in April at the Marsa al-Hariga terminal, before sailing to Singapore and Hawaii.

The rebels said yesterday they plan to resume oil output and start the Zawiya refinery, followed gradually by the country's four others, after assessing damage.

Stabilize Prices
"One of the major impacts of the rebels controlling Libya right now is we're going to see some stability in the oil market," said Anas F. Alhajji, chief economist for NGP Energy Capital Management LLC in Irving, Texas, which manages $10 billion in assets. "We'll see more Libyan oil, the Saudis cutting production and larger spare capacity."

Oil production may take a year to reach the previous total of 1.5 million barrels a day, Ahmed Jehani, chairman of the rebels' stabilization team, told reporters yesterday in Dubai. He said later that production will resume "in a few weeks."

Shokri Ghanem, the top Libyan oil official who defected to the rebels in June, said it will take 18 months to reach pre- conflict levels, Al-Arabiya television said Aug. 22.

"The sudden takeover of the largely intact western fields increases the likelihood that production on a 12- to 18-month horizon might be closer to 585,000 barrels a day," Goldman Sachs Group Inc. said in an Aug. 22 note. It previously estimated 250,000 barrels a day for next year.

Eoin Treacy's view The fall of Tripoli to the Libyan rebel forces is hopefully a positive development for the global economy. However there remain a large number of uncertainties surrounding the country's ability to increase oil exports. We do not know how politically stable the country will be post Gaddafi. Will a new government, whenever one is formed, wish to renegotiate contracts? It will take a least a year to ramp up production to levels which will make a meaningful difference to supply and demand. A year is a long time in markets.

Brent crude remains above $100. Investors have not yet priced in a reduction in the market's risk premium, but assuming tensions begin to ease this may occur. Prices have been stable mostly below $110 for the last 10 days and a sustained move below $105 will be required to signal a return to supply dominance.

Among major oil producers Eni has the largest exposure to Libyan production. Prices returned to test the 2009 low near €12 on August 11th and continue to range above that level. The yield of 7.56% should help to shelter the share provided it is maintained and a sustained move below €12 would now be required to question potential for an additional bounce. (Also see Comment of the Day on August 12th).