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Surge Desk

Force Majeure: Libya Oil Exports Move Explained

Feb 22, 2011 – 2:50 PM
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Mary Phillips-Sandy Contributor

It's in the contract.

Global commodities traders are reporting disruptions of crude oil import and export activity in Libya, Reuters reports. According to the traders, Libya has declared force majeure on shipments in some ports, effectively halting some normal market activity.

Force majeure (literally, superior force) is a contract clause that can be used to relieve parties of their obligations in the event of circumstances beyond their control. The clause is typically invoked when there's been a natural disaster, fire, strike, violent attack, war or serious political instability that disrupts transportation, production and storage of goods.

Here are some recent examples of force majeure:
  • Earlier this month, Australian mining company Xstrata declared force majeure on its coal deliveries after heavy rains caused flooding in its production facility.
  • Just last week a Transco gas pipeline unit owned by Oklahoma-based Williams Partners declared force majeure when it discovered gas leaks at an underground storage facility in Mississippi.
  • And in late 2010, multinational chemicals company Arkema declared force majeure on PVC deliveries after supply of a critical component material was disrupted.
The unrest in Libya has begun to affect the world's oil markets in other ways. Oil futures contracts are trading at their highest rate since 2008, and analysts say rapid price increases are being driven by fear and uncertainty.

Libya is the world's 15th-largest exporter of crude oil, and although instability in its export market will have worldwide impact on prices and supply, the risk may be greater outside the United States. Europe consumes 85 percent of Libyan crude exports, while the U.S. consumes only 5 percent.

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