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Asia more concerned about oil price fallout from Libyan woes than cargo flows

Libya’s oil production woes may not dramatically alter Asia’s crude buying plans due to the region’s relatively low dependence on those supplies, but refiners are bracing for some price impact and supply squeeze as traditional customers of the North African OPEC producer scramble for cargoes from elsewhere.

The latest production and export hurdles in Libya — where the biggest oil field Sharara has been shut and force majeure has been declared at the Zueitina oil port — adds to concerns of Asian oil buyers who have been vocal that OPEC+ production increases have fallen short of expectations.

With oil demand in Asia expected to stage a sustained recovery, Libya’s production woes would mean that refiners would have to be prepared to pay higher oil prices for an even longer period, analysts told S&P Global Commodity Insights.

“Asia needs some 1.2 million b/d of additional crude this year for runs. The impact of Libya’s disruptions can be felt in Asia through global supply disruptions,” said Kang Wu, head of global demand and Asia analytics at S&P Global Commodity Insights.

“Given the Russia-Ukraine conflict and Europe pulling in the barrels from around the world to fill the gaps left by Russia, any tightening of supply is a concern, unless the volumes affected are not significant enough to swing the global supply and demand balance,” he added.
Supply headache, price impact

Libya’s state oil company National Oil Corp. said April 18 it was declaring force majeure on the Zueitina oil port after “individuals” entered the terminal and prevented workers from continuing exports.

The 300,000 b/d Sharara field was shut in after a group forced its way in demanding an equal distribution of oil wealth across Libyan regions. Protestors have also forced operations to stop at the 70,000 b/d El Feel oil field.

“The production gap will play into an already undersupplied market that is currently struggling with the loss of barrels from Russia – estimated between two to three million b/d. If this blockage of Libyan oil production continues, the market could see a further rise in prices,” said Rajat Kapoor, managing director for oil, gas and chemicals at Synergy Consulting.

Libya holds Africa’s largest proven reserves of oil, and its main light sweet Es Sider and Sharara export crudes are sought after by refineries in the Mediterranean and Northwest Europe for their gasoline and middle distillate yields.

The North African OPEC producer has been wracked by conflict between two factions — the UN-backed Government of National Accord and the self-styled Libyan National Army.

The production disruptions are likely to further affect OPEC’s production growth, which is already facing increasing capacity constraints. OPEC output in March rose by 57,000 b/d to 28.56 million b/d, lagging the 253,000 b/d increase that OPEC is allowed under the OPEC+ deal, according to an OPEC report released April 12.
Asian pockets of demand

In Asia, crude and condensate procurement managers at major refiners in South Korea, Japan and China indicated that the disruptions would have minimal impact on their linear programming models or overall refinery operations as the companies hardly purchase cargoes from Libya.

India sources less than 1% of its crude imports from Libya, while China ships in slightly more than 1% of its requirements from the same supplier.

However, Libya’s Mellitah crude is one of the staple grades for Thailand’s key refinery CDUs and the country may need to quickly assess options to expand purchases of alternative light sweet crudes from the US, West Africa and neighboring Malaysia to supplement rapid recovery in fuel demand and overall economic activity, sources at PTT said.

Libya is one of Thailand’s major crude suppliers and the absence of Libyan barrels must be replaced quickly to support the recovery in tourism and overall economic activity, a light sweet crude trader with close knowledge of Thailand’s domestic refinery linear programming models said.

Thailand imported 65,082 b/d of crude from Libya in the first two months of 2022, up 38% from 47,193 b/d received in the same period a year earlier, latest data from Thailand’s Energy Policy and Planning Office showed.

The most prompt replacement could come from Malaysia, with light sweet grades including Kikeh, Kidurong, Kimanis seen as suitable candidates to fill the list of alternative feedstock options in the near to medium term, according to feedstock management sources at PTT.

Malaysian barrels could be delivered to Thai oil terminals within a week, given the close proximity. However, high spot premiums for the light sweet Malaysian grades would hurt the refining economics in the longer run, increasing the sense of urgency to seek incremental supplies from other light sweet crude suppliers in the US and West Africa, the sources said.

Malaysia’s flagship Kimanis crude has been assessed at an average premium of $7.20/b to Dated Brent so far this year, well above the 2021 average premium of $2.80/b, S&P Global data showed.
Source: Platts

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