The Libyan revolt that commenced at the beginning of February has now widened across the country. Besides affecting the country's crude oil exports, it is now also threatening operable refineries and the country's key product hubs.
With regard to the crude market, the impact of the rebellion appears to be grave. While the country accounts for less than 2% of global oil supply, its central role as a crude exporter at the front door of Europe and as a key supplier of light-sweet crude (8.8% of global light-sweet crude supply) must not be overlooked. According to the IEA, approximately 1 million b/d of the country's crude production is now idle, which is equivalent to around 62.5% of total crude production. Other estimates put the number at 1.2 million b/d. In any case, the small remainder is facing increasing obstacles to reach international markets as buyers might refrain due to payment risks and sanctions imposed by the UN.
A look at crude differentials indicates that Urals Med had initially benefitted as the most liquid spot grade in the region. However, the Mediterranean flagship eased since the start of March, in line with a boost in imports from the Middle East, notably more than 5 million Iranian barrels (Platts). Moreover, according to our estimates, the Kingdom's February crude production increased on average by over 200,000 b/d from January, some of which may end up in the Mediterranean. The tightness in the Med was also mirrored in the latest round of Saudi official selling prices, with the price for April Arab Extra Light, the most comparable grade to the missing Libyan barrels, being raised considerably in the Med (+$1.55 per barrel).
Likewise, regional light sweet grades are being buoyed by the shortfall of Libyan crude, with key Caspian and West African grades seen at wider premiums to Dated Brent. Combined with pre-driving season demand in the US, the situation in Libya has also widened light/heavy crude spreads.
With reports of ongoing battles for Ras Lanuf and Az Zawiya as well as jet fighters having bombed the oil port of Brega, production and exports from Libya's key product hubs have been largely affected as well. In 2010, Libya exported around 90,000 b/d of oil products, according to our SuDeP Model. Analysis of IEA data shows that the bulk of Libyan exports goes to OECD Europe, with naphtha accounting for the biggest portion (more than 30,000 b/d).
The halt/reduction in operations at Libyan refineries has likely tightened supplies in the jet/kero market, while the market is also buoyed by rising aviation demand in Europe and Asia. At the same time, the tightness of light crude has brought the Med gasoline crack to levels above the $180-per-tonne threshold, a $30-per-tonne rise w-o-w (Platts).
In addition to the domestic refineries, Libya has operations in Europe, where NOC's overseas arm Oilinvest, has a network of refineries with 270,000 b/d capacity spread across Italy, Germany and Switzerland, which could probably reduce runs due to the sanctions imposed. The company's subsidiary Tamoil is also the distributor and retailer of refined products in the three countries.
Looking ahead, the loss of Libyan light sweet oil poses a substantial threat to Europe's already troubled refining industry, which relies heavily on high quality crudes to produce value-added products whilst minimising expensive processing. Meanwhile, skyrocketing crude prices are taking their toll on refining margins which could lead to run cuts in the Mediterranean, potentially also via the backdoor of (prolonged) refinery maintenance.