By JAMES HERRON
LONDON - Oil production in Libya is resuming far faster than initially expected and is on track to reach 0.7 million bpd, almost half its pre-war level, by the end of this year, said the International Energy Agency Thursday.
The agency praised the "Herculean effort" by Libyan officials to restore shut down oil fields, which have proven its previous forecasts to be far too cautious. As such, global oil supply and demand look to be in balance in 2012, the IEA said, although it warned that low inventories and the risk of further Middle East instability could underpin continuing high prices.
As recently as September, the IEA was predicting Libya would produce no more than 0.4 million bpd by the end of this year. That milestone was passed in October and Libya was producing more than 0.5 million bpd by early November, the IEA said.
Shortly after the IEA upgraded its forecasts, Libyan oil officials said another of the country's largest fields could restart within a week.
It was initially feared that the restart of the Elephant field, which capable of producing up to 150,000 bpd of oil, could take months because its accommodation block had been looted by Gadhafi forces. Elephant is partially owned by Italian oil company Eni SpA (E).
The IEA now expects Libya to produce 0.7 million bpd of oil by the end of this year. It also increased its forecast for first quarter Libyan production by 60% to 0.8 million bpd.
By the end of 2012 it expects Libya to produce 1.17 million bpd.
Many constraints remain before Libya can restore full pre-war oil production of around 1.5 million barrels a day, the IEA said. Damage caused by heavy fighting around oil export terminals during the civil war is likely to constrain output even if oil fields themselves have not been damaged, it said.
The most costly and specialized repairs may have to wait until workers from international oil companies return to Libya, it said.
The improved supply prospects will put the oil market virtually in balance in 2012, the IEA said. An extra 1.4 million bpd of oil and natural gas liquids production from sources outside OPEC in 2012 should be enough to fill rising demand, it said.
The IEA also trimmed its demand forecast for 2011 by 70,000 bpd and for 2012 by 20,000 bpd.
However, with oil inventories now below their five-year average for three consecutive months, the first time this has occurred since 2004, there is little margin for error in the market, the IEA said.
Dow Jones Newswires