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Its been a rollercoaster ride for Libyas oil sector the last few months. With production from this important OPEC player swinging wildly with unstable politics in the country.

And news this week suggests things just got worse for Libyas oil industry in a major way.

Unnamed sources in the country told Bloomberg Wednesday that Libyas largest oil field, Sharara, has been suddenly shut in. With the pipeline carrying crude from this massive operation having been completely idled.

As a result, sources said Libyas overall oil production has now fallen to 560,000 barrels per day. Coming just days after Libyas National Oil Corp. had publicly pegged the countrys production at 700,000 b/d.

That suggests the stoppage at Sharara has lowered production by 140,000 b/d representing a 20% decline. With the shortfall happening virtually overnight, and with no apparent warning to oil traders.

Heres the most important point: sources in Libya didnt give any reason for the outage. Making it difficult to tell if the drop in production will be a prolonged event.

The most likely candidate is political instability. With numerous oil facilities across Libya having seen shutdowns in recent months due to fighting between the countrys national army and various rebel factions. Related:OPEC Compliance Nears 100% On Libyan, Nigerian Outages

In fact, the countrys Es Sider oil export terminal had just reopened for shipments this week after a three-week stoppage, during which the rebel Benghazi Defense Brigades briefly took control of the facility.

Sources commenting on this latest outage did note that crude exports have now been halted at two other Libya oil terminals: Zawiya and Mellitah. Although it wasnt clear if the problem is at these facilities themselves, or due to problems with the pipelines feeding the terminals.

Whatever the case, this disruption is an important event for crude prices. With Brent jumping $1.12 per barrel on the news, putting it solidly above $50. Watch for more news from Libya on whether production from Sharara can be restored soon if not, we could see more upward momentum for oil.

Heres to on-again, off-again.

By Dave Forest

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Mysterious Outage In Libya Could Drive Oil Prices Higher - OilPrice.com