The resurgence of Libyan oil exports is exerting downward pressure on crude prices across European markets, from the North Sea to the Mediterranean.
With Libyan production levels on the rise, refiners in the Mediterranean region have begun to reduce their purchases of crude oil from outside sources. This shift in supply dynamics has led to a decline in demand for crudes from other regions, forcing sellers to redirect shipments originally bound for Southern Europe. For instance, a North Sea Ekofisk cargo intended for delivery to Italy was recently resold to a refiner in Northwest Europe, reflecting the changing preferences of Mediterranean buyers. Over the past two weeks, differentials of several crude grades have dropped by more than $1 per barrel.
The return of Libyan oil production comes amid an already troubled European crude market, grappling with poor refining margins, unexpected refinery outages, and a recent spike in freight costs. The oversupply of physical crude has added further pressure to oil futures, which saw nearly a 5% drop on Tuesday amid heightened geopolitical concerns in the Middle East.
Libya’s oil output has doubled since a late-September agreement resolved a longstanding dispute between two rival governments over control of the country’s central bank, which had stifled production for nearly two months. The increased export volumes from Libya have also driven up freight rates, as refiners scramble to secure tankers to transport the North African country’s crude.
With local supply now abundant, Mediterranean refiners are increasingly shunning cargoes that involve longer haul voyages. The tanker Eagle Bintulu, which loaded an Ekofisk cargo in early October, has been diverted to Le Havre, France, instead of its initial destination at the Italian port of Trieste—a key hub for distributing crude to multiple European refineries.
The surge in Libyan supply is impacting prices for sweet, or low-sulfur, crudes throughout Europe. Premiums for Azeri Light, a favored grade among Mediterranean refineries, have fallen by more than $1 since Libya resumed production, while the Caspian CPC Blend has shifted from a premium to a discount. Even Norway’s flagship Johan Sverdrup crude has been sold at a discount of $2 to its benchmark, Dated Brent, marking its lowest point in more than six months.
Libya’s return to the market is also affecting demand for Nigerian crude, with some November-loading cargoes still searching for buyers, according to market sources. This shift underscores the ripple effect of Libyan oil’s comeback, which has tightened the competitive landscape for African producers looking to secure a foothold in Europe’s oil market.
-Bloomberg
