Libya’s first oil expansion in 10 months aiding refiners

Sharara Field

Protesters had threatened to shut the Sharara field today if the government doesn’t satisfy their demands, which include the creation of a local council and granting of national identity cards to Tuareg tribesmen. The demands are being met “very slowly,” Mustafa Lamin, a spokesman for the protesters, said yesterday.

The field is working normally, and protesters will meet with government officials today before deciding whether to shut the field again, Lamin said by phone earlier today.

“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.”

Brent-WTI

While a recovery in Libyan oil flows will help narrow the gap in prices between Brent crude, the European benchmark, and West Texas Intermediate, its U.S. equivalent, the two grades are not expected to return to parity soon. It is the world’s most- traded energy spread.

Brent traded today at $106.61 a barrel in London, exceeding WTI by $13.29 as of 3:15 p.m. in London. The spread will average $6 in 2014, according to Commerzbank AG, while Goldman Sachs Group Inc. predicts $9, Barclays Plc $8 and ABN Amro Bank NV $5.

Europe’s refineries will be helped because the return of Libyan oil coincides with surging shipments of light, sweet crudes from the North Sea and Caspian Sea including Azerbaijan.

Daily exports of North Sea Brent, Forties, Oseberg and Ekofisk crudes, which make up the Dated Brent benchmark, will jump to a two-year high in February, loading programs obtained by Bloomberg News show. Shipments of CPC Blend for the same month will jump to the most since at least January 2008. The Caspian Sea grade is shipped to global markets from a terminal on the Black Sea near Russia’s Novorossiysk port. Exports of Azeri Light from Ceyhan in Turkey will increase to the most in 23 months.

‘Sustainable Basis’

“If Libya were to resume exports from the west on a sustainable basis, light crude grades would come under pressure, particularly Saharan, Azeri,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a consultant in London.

Light, sweet crudes in the Mediterranean mostly trade in relation to Brent. The official selling price of Saharan Blend, the Algerian grade, jumped to a two-year high of $2 a barrel more than Dated Brent in October, compared with a discount of 40 cents in July, according to state-owned Sonatrach. The traded price of the grade could decline by 30 to 40 cents if Libya restores full production, according to Ul-Haq at KBC.

CPC Blend was mostly bid at 85 cents to $1.15 a barrel more than Dated Brent over the past two months before dropping to a 25-cent premium on Jan. 8, according to a Bloomberg survey of traders and brokers monitoring the Platts pricing window. It could fall by another 50 to 60 cents a barrel because of the extra Libyan supply, the KBC analyst estimates.

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