Libya’s supply disruptions to shore up crude prices

The United States government shutdown in October and poor refining margins set the Middle East crude market on a relatively sluggish course over the month.

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Trading of Oman crude oil on the Dubai Mercantile Exchange (DME) last month was locked in a narrow range of US$105 to $108 per barrel, with the front-month December contract expiring at $107.63, an improvement of about $2 compared with a month ago.

However, the United States government shutdown last month and poor refining margins set the Middle East market on a relatively sluggish course over October.

The monthly DME average, which is used by Oman and Dubai to set their official selling price, was at the lowest level since July at $106.71. It was also 1.7 per cent down on the September average of $108.58.

Brent, the European benchmark crude, fell by a similar margin over the course of the month, maintaining the Brent/Oman spread at about $2 a barrel.

But West Texas Intermediate (WTI), the US benchmark, was the big loser, down 6 per cent on the month, having fallen to about $96 a barrel because of the overhang of crude in the US.

Adding to the mildly bearish sentiment for the Middle East, refining margins were poor for Asian refiners in recent weeks – which means buyers processing crude into finished products such as petrol, diesel and jet fuel – were struggling and may be forced to cut back on Middle East crude volumes.

But supply disruptions from Libya, an Opec member, continue to bolster prices.

And the investment bank Goldman Sachs said Opec crude production would decline this year by more than its previous estimate because of renewed disruptions in the North African country.

Goldman Sachs said this would underpin Brent prices at about $110 a barrel, which in turn would support Oman prices at about $108, based on an implied Brent/Oman spread of $2 a barrel.

Libya was said to be exporting just 150,000 to 200,000 barrels per day (bpd) of crude by the end of last month, just a fraction of its 1.25 million bpd capacity, as internal strife continues to paralyse the oil and gas sectors.

The cuts in Libyan oil have been at least partly offset by Iraqi exports, as volumes increase following ongoing upgrading work at the Basra export terminal.

Exports from Iraq’s southern terminals averaged at 1.92 million bpd in October, according to shipping data Reuters tracked, which is up from 1.67 million bpd in the first 16 days of the month and September’s 1.82 million bpd.

Meanwhile, Oman production hit a 13-year high of more than 950,000bpd during September and October, as enhanced oil recovery techniques and new crude streams boosted output. The country’s output previously hit a peak of 970,000bpd at the turn of the century.

Oil watchers are also keeping an eye on technical and diplomatic meetings regarding Iran’s nuclear programme, which could lead to an easing of sanctions on the country, but any increase in Iranian exports would appear some way off.

Paul Young is the head of energy products at the Dubai Mercantile Exchange