Libyan Oil Shutdown Pushes Up U.S. Grades

The ongoing shutdown of Libyan oil exports is proving beneficial to some crude oil grades including Azeri, African and U.S. oil grades, but could prompt some refiners to cut their crude intake altogether due to poor profit margins, Reuters has reported. 

According to Patricio Valdivieso from consultancy Rystad Energy, Azeri and Algerian Saharan Blend will be refiners’ top choices for Libyan substitutes for October-loading cargoes while U.S. WTI Midland could replace Libyan volumes in the short term, Reuters reported.

Azeri and Kazakh crude prices have shot up ever since the Libyan disruptions last week as refiners sought replacement barrels. Meanwhile, Europe’s imports of WTI Midland hit 1.43 million barrels per day in August, good for a 24% month-on-month increase, partly supported by Libyan outages. U.S. WTI Midland physical crude prices have strengthened relative to WTI, with the price differential between the two grades widening to 80 cents per barrel from 60 cents just prior to the shutdown of Libyan oil fields.

“U.S. crude is a good substitute for light sweet Libyan barrels, and it can make the journey fairly quickly across the Atlantic,” Kpler analyst Matt Smith told Reuters.

The outage has also encouraged buyers to turn towards the West African crude that was previously selling poorly because of low refining margins and upcoming maintenance.

“There was a huge overhang of Nigerian cargoes for September, so the fact differentials haven’t dropped too far is a sign that Libya did have an impact on the West African market as well,” Kpler lead crude analyst Viktor Katona told Reuters.

Libya is yet to resume oil exports two weeks after the Haftar clan blocked production in a bid to gain leverage over a battle to control the Central Bank. Six engineers have told Pan-Arab newspaper Asharq-Al-Awsat that exports remained halted at the ports of Es Sidra, Ras Lanouf, Hariga, Zueitina, Brega and Sirte although some production was being increased to feed local power generation and ease fuel shortages.

According to S&P Global, up to 230,000 b/d crude output has been restored at three eastern fields under the control of warlord Khalifa Haftar, a far cry from Libyan output at 1.15 million b/d in July. Libyan crude exports reached multi-year highs in April, with refiners in Northwest Europe and the Mediterranean prizing Libyan light sweets.