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Analysis: Asia's growing appetite for Libya's sweet crude

Highlights

US-China trade dispute pulling more Libyan crude east

Almost 200,000 b/d has flowed to Asia in 2018

More than 20% of exports poised to go east

Key buyers include China, Indonesia, Singapore, Thailand

London — Asian appetite for Libyan crude is climbing sharply this year aided by strong refinery margins, firm middle distillate cracks and low freight rates, as Asian refineries start to run sweeter crude slates.

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Demand is expected to grow even higher in the coming months as China starts to increase its purchases of crude from Libya, coinciding with a fall in its imports of US crude as threats of tariffs still linger, sources told S&P Global Platts.

Libyan crude -- which is typically light, low in sulfur and yields a good amount of middle distillates and gasoline -- is extremely popular among refineries in the Mediterranean and Northwest Europe.

But the country is also beginning to find stable market in Asia, which is the world's largest oil demand center, with a large number of refiners focused in China, Malaysia, Indonesia, Singapore, India and Thailand.

More than 20% of Libya's crude oil loadings have been exported to Asia so far this year, compared with around 10-15% last year, according to Platts estimates.

Almost 200,000 b/d of Libyan crude has flowed to Asia so far in 2018, compared with 75,000 b/d last year, according to data compiled from Platts trade flow software cFlow.

Higher flows to Asia are also supported by the steady rise in Libyan crude oil exports this year.

Libyan grades like Sarir, Zueitina and Abu Attifel have always been popular with Asian refiners, but even other grades like Sirteca, Amna, Es-Sider and Amna are now beginning to move east.

CHINA-US TRADE WAR

The threat of tariffs on US crude imports into China has also pushed some key Chinese buyers towards importing more Libyan crude, sources said.

"There is a gap on the market with China severely reducing their US crude imports," a source active on the Libyan crude market said. "We haven't seen any tariffs yet but the Chinese are still not buying much US crude. They are looking elsewhere and Libyan crude stands to benefit from this row."

China may have removed US crude from the list of products included in its latest round of retaliatory tariffs but Chinese refiners continue to cut back on US supply, wary of the unpredictability of the ongoing trade dispute.

Beijing removed crude from its latest list of products set to be slapped with an import tariff of 25% on August 23 after it was included in an earlier proposal in June.

PRICE COMPETITIVE

Traders also said that light sweet crude has been finding more favor among some Asian refiners as such crudes have become more competitive against rival medium sour grades.

Trading sources said demand for sweeter crudes in some Asian refining hubs like China and Singapore was one of the reasons for the increased appetite, adding that the "low official selling prices of Libyan crudes" were also helping.

Refiners in China have gradually begun to run sweeter crude slates, which is supporting buying interests of crudes from Libya and other countries that produce low sulfur grades.

The spread between the light sweet Platts Dated Brent benchmark and the medium sour Platts Dubai measure has narrowed considerably in the past few months, reflecting the growing disparity between grades.

This has been strengthened the appeal of Libyan crude in Asia, which is priced on a Dated Brent basis.

Higher exports have seen a wider pool of buyers returning to the Libyan crude market, notably in the Mediterranean but also from parts of Northwest Europe, the US and Asia.

Libyan oil production currently remains just above 1 million b/d, a two-month high, marking a major reversal in fortunes from early June when fighting at key oil export terminals sent production into free-fall.

-- Eklavya Gupte with Peter Farrell and Anthony Guida, newsdesk@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com