The first expansion in Libyan oil production in 10 months is poised to lower regional crude costs, boosting margins for European refiners that have been closing at the fastest rate in decades.
The holder of Africa’s largest crude reserves tripled supply to about 650,000 barrels a day in the three weeks to Jan. 13, according to the government. The production rate, 42 percent of the average for the past decade, is a signal to analysts at KBC Energy Economics and Petromatrix GmbH that competing grades may get cheaper. Libyan oil is categorized as light sweet because of its below-average sulfur content and lower density.
Europe shut about 10 percent of its refining capacity since 2008 amid rising prices for crude, increased competition from new Asian plants and the U.S. shale-oil production surge that lowered demand for imported fuel. A sustained Libyan recovery may help curb the relative cost of crudes from the Caspian, Algeria and North Sea. Sharara, Libya’s second-largest field, resumed output on Jan. 4 and the government is negotiating with protesters to keep it open.
“All European refiners are likely to profit from rising Libyan production as light, sweet supply increases,” said Ehsan Ul-Haq, a senior market analyst at KBC in Walton-on-Thames, England , who’s worked in the oil industry for two decades. “The Mediterranean refiners will benefit the most.”
Libya may end the closure of eastern ports held by rebels later this month, Oil Minister Abdulbari Al-Arusi said in New Delhi on Jan. 13. Should production hold at current rates it would mark the first monthly increase since March 2013 and compares with 210,000 barrels a day in December, according to data compiled by Bloomberg. Exports from Waha in the east, the largest field, halted in July.
Production will probably average 650,000 barrels a day or more this year, Goldman Sachs Group Inc. said in a report Jan. 6. Exports all but stopped during the 2011 uprising that led to the ouster of Muammar Qaddafi.
Shipments revived after the former ruler’s death, before plunging again in the second half of last year amid strikes, protests and the formation of a self-declared, semi-autonomous government in the east.
Libyan exports may not return to normal any time soon because those divisions have yet to be resolved. An oil tanker attempting to load last week at Es Sider in the east was turned away by the Navy. The central government’s Prime Minister Ali Zaidan threatened to sink any ship collecting crude from the eastern region after rebel leaders there said they would protect vessels.
“The problem in Libya, like some other Middle East and African oil producers, needs to be resolved at grassroots level,” said Abhishek Deshpande, an analyst at Natixis SA in London. “There needs to be proper negotiation and solution between Libyan government and former rebels, militia and tribal forces. Military force will only make the situation worse.”
Prices for West African grades also could be curbed relative to Brent oil, according to Olivier Jakob, the managing director of Zug, Switzerland-based Petromatrix. Extra shipments from Libya, combined with more output from South Sudan, Nigeria and Iran could add more than 3 million barrels a day to supply, ABN Amro estimates.