Libya regains customers after oil price stand-off
Friday, 27 July 2012
Demand for Libyan crude has been lackluster at best in the last few months as lifters have been complaining for six months that official selling prices (OSP) have been too high and ignoring market trends.
"All our term clients without any exception were not comfortable at all with our OSPs since June," said a senior marketing official at Libya's National Oil Corporation (NOC).
The high OSPs have particularly disappointed big trading houses, which provided the rebel forces with fuel throughout last year effectively helping them to win a civil war.
The pricing stand-off reached its peak last month when a major glut in Europe sent prices for sweet light crude grades, similar to Libyan oil, to record lows.
Buyers of Libyan oil had minimised purchases to such lows that NOC was forced to cut oil output by a fifth or 300,000 barrels per day.
"OSPs were part of the story but there were other factors like protests and power shortages, which have more effect on production rates then prices," the NOC official added.
Europe, the main destination for Libyan crude, has been facing a glut of high quality crude oil grades for much of this year, with a struggling refining industry and falling United States imports due to the shale oil boom.
Spot prices on Algeria's Saharan Blend and Kazakh CPC Blend hit a floor in June when they traded at dated Brent minus $3.30 and minus $4.35 a barrel, respectively.
At that time Libya kept official selling prices for its benchmark Es Sider crude stubbornly high, over $5 a barrel more expensive than CPC and close to $4 a barrel above Saharan Blend.
Buyers could not justify lifting the crude and re-selling could only be achieved at unprofitable discounts, up to $1 a barrel below OSPs.
At least one Mediterranean refiner with a large refining system was approached by NOC in June to take additional July cargoes, at a time when traders had to stop as they have no refining assets and ability to absorb unsold barrels.
A month later, buyers find themselves scrambling for Libyan cargoes after the country steeply cut OSPs for August. Some cargoes have been selling at premiums to the OSPs.
"The OSPs make Libyan by far the refiner's choice," said one trader.
Es Sider, was largely sold out only a few days after the August OSP was cut by $1.60 a barrel down to dated Brent minus $1.30. Other grades, including Libya's prized El-Sharara, were chopped by over two dollars.
A sharp correction was expected after NOC organised meetings in Istanbul in June with some of its lifters like Total, BP, BB Energy, ConocoPhillips and Saras to discuss the non-lifting.
"They should have lowered the OSPs months ago," said another trader. Sellers are expected to push up prices and test refiners' tolerance, but also to remain attuned to the market, he added.
NOC is expected to increase September OSPs in line with recovering sweet grades but a return to consistently over-reaching levels is not anticipated, several sources said.
"July was too high and August is too cheap," said a third trader.