By John Hamilton.
London, 4 September:
The restart of production at the Ras Lanuf oil refinery indicates that the National Oil Corporation (NOC)’s . . .[restrict]downstream and oil marketing operations may finally be returning to normal after an extended period during which its pricing strategy appeared to defy the market.
Recent sharp fluctuations in the official selling price (OSP) of several of the corporation’s major crude streams also indicate that its international marketing department is attempting to recalibrate its pricing strategy after a long period when it tried to defy the market.
The crude stream which has witnessed the largest change in OSP is the Sharara blend, produced by the Akakus Oil Operations joint venture from the As-Sharara field in the south-western Murzuk Basin and exported via Az-Zawiya.
The NOC cut the Sharara OSP relative to dated Brent by -$2.35 in August from a premium of $0.85/barrel to a discount of -$1.50/barrel. In September, the discount was reduced to -$0.70. The Mellitah, Brega, Sirtica, Es-Sider and Sarir blends also demonstrated similar trends.
According to an oil trader with good knowledge of the Libyan market, the NOC was forced to confront reality this summer after several months when it had almost been able to charge what it liked to buyers who wanted to re-establish good relations with the new sector management.
“A lot of people were trying to establish a position in Libya. This gave NOC the confidence to submit these numbers. They were trying to maximise revenues,” said the source.
But after several months of paying too much, the buyers including term lifters with rights to purchase fixed quantities each month inevitably turned away.
“A good deal of cargoes were given back by term lifters in June,” said the source. NOC attempted to sell these excess cargoes on the spot market and lost a lot of money on them he said.
There was no way that Libya could continue to sell its crude at several dollars more per barrel than Algeria’s Sahara blend, North Sea Brent and even the West African crudes, which are all to some extent competitive with Libya’s main blends.
“With the rest of the world going to hell on crude, Libya was the only one keeping the price up,” said the trader.
At the beginning of August, the NOC heavily cut its OSPs in many cases shifting from a premium to dated Brent to a discount. Inevitably it overcorrected. The main OSPs for September were increased again to bring them more into line.
Since the beginning of this year other oil trading sources have said that one of the main barriers to restarting the Ras Lanuf oil refinery was that the NOC was getting such a good price for Sarir crude on the international market that it made no sense to sell it to the Libyan-Emirati Oil Refining Company (Lerco) which operates Ras Lanuf, particularly as the Lerco had reportedly negotiated a small discount on its feedstock with the previous regime.
In April and May this year, Sarir crude was trading at parity with dated Brent. For September it is selling at a discount of $0.7 per barrel potentially opening the way for Lerco and NOC to agree a supply contract that satisfies both sides.
John Hamilton is a contributing editor at African Energy http://www.africa-energy.com/ and is the author of Libya’s Energy Future http://tinyurl.com/bpows3u [/restrict]