RPT-UPDATE 3-U.S. firms stop Libyan oil trade due to sanctions

Mon Mar 7, 2011 7:03pm GMT

 * Exxon, Conoco, Morgan Stanley stop Libyan oil trade
 * European firms still buy sporadic Libyan cargoes
 * Banks become reluctant to finance Libyan oil trade
 (Combines Exxon, Conoco, Morgan Stanley, banks)
 By Emma Farge and Dmitry Zhdannikov
 LONDON, March 7 (Reuters) - Major U.S. oil companies have
halted trade with Libya and big banks have started to pull back
from funding such deals because of U.S. sanctions, in moves that
will further disrupt oil flows from the torn country.
 Around half of Libya's oil output, or over 1 percent of
global supply, has already been choked off by lethal clashes
between rebels and forces loyal to Libyan leader Muammar
Gaddafi. [ID:nLDE7260G5]. Oil prices hit their highest levels
since September 2008 on Monday. [O/R]
 Exxon Mobil (XOM.N: Quote) and Morgan Stanley (MS.N: Quote) have stopped
trading oil with Libya, trade sources said on Monday.
ConocoPhillips (COP.N: Quote) also said it was not exporting oil from
the country.
 "We are in full compliance with U.S. sanctions", a Conoco
spokesman said.
 Trading sources said the biggest European buyers of Libyan
oil, including Italian refiners, continued to trade. But trade
finance was becoming a problem, similar to big banks' reluctance
to finance oil deals with Iran because of U.S. sanctions.
 "Banks are blocking payments. You can't find one willing to
make the transactions. The cargoes that are being delivered
haven't been paid for," said a trader with a European firm.
 "There are fewer and fewer cargoes leaving Libya; production
keeps dropping. Each tanker that is delivered could well be the
last," he added.
 "It's not worth seeing your name in the paper associated
with Libyan deals," said Olivier Jakob, an analyst at
consultancy Petromatrix. "Some companies buying from Libya will
balance the reputational risk against what this trade will bring
 France's Total (TOTF.PA: Quote) and Italian companies ENI (ENI.MI: Quote)
and Saras were regular buyers of Libyan crude oil in the past.
  FACTBOX on Libya's oil output and customers:  [ID:nLDE7260SL]
  FACTBOX on sanctions against Libya:           [ID:nLDE7211UI]
 Most estimates suggest around half of Libya's 1.6 million
barrels per day (bpd) of oil production capacity has been
suspended due to clashes between government forces and rebels.
 Some trade sources expect other oil companies to follow U.S.
firms' lead and stop trade with Libya, effectively halting
exports to the international market.
 "Players won't be able to buy Libyan crude even if it's
there. It won't matter if they are producing or not," said a
crude oil trader.
 A trader working for a non-U.S. oil major said that U.S.
citizens were now forbidden from dealing with Libyan oil.
 "Sanctions and legal restrictions recently imposed on
Libya could complicate a return to normal trade and commerce,"
said Michael Wittner from Societe Generale.
 "Will the shut-in volumes go higher? The answer is Yes. As
the conflict drags on, it is entirely possible, and maybe even
probable, that Libyan oil production and exports will drop all
the way to zero," he added.
 Morgan Stanley regularly sourced two to three cargoes of oil
from Libya per month to feed the UK Grangemouth and the French
Lavera refineries, an oil trader said.
 This amounts to around 2 million barrels of oil worth around
$234 million based on a Brent price LCOc1 of $117 a barrel.
 The bank also traded gasoline with Libya, sources said.
 Conoco has a non-operating 16 percent interest in the Waha
concessions in Libya. Net oil production averaged 46,000 barrels
per day in 2010, versus 45,000 barrels per day in 2009.
 Exxon was buying substantial volumes of Libyan crude,
sources said.
 Some traders said that even if some companies forfeit their
Libyan oil contracts, other firms may quickly fill this role in
a tightly supplied market.
 "The oil produced will go somewhere. Someone will take it,"
said the oil trader working for a U.S. company.
 Austrian energy group OMV (OMVV.VI: Quote), which has production
operations in Libya, said on Monday it was still getting oil
from the country despite severe output disruptions.
 The other major constraint is port blockages, which could
further slow exports. [ID:nLDE7231Q8]
 (Reporting by Emma Farge, Dmitry Zhdannikov and Jessica Donati;
Writing by Dmitry Zhdannikov, editing by Jane Baird)

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