London — Two rival groups in Libya -- the UN-backed Government of National Accord and the self-styled Libyan National Army -- have agreed to reopen key oil ports, signaling the possible restart of more than 1 million b/d of crude.
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But sources close to the matter said Sept. 18 that state-owned National Oil Corporation, or NOC, was still to agree some of the terms of the deal. A spokesman at NOC declined to comment.
The news of a return of Libyan barrels to a market, already awash with crude, immediately pushed oil prices lower.
But by 1450 GMT prices had recovered slightly, ICE November Brent futures were trading at $43.37/b, up 7 cents/b and off an earlier high of $43.80/b.
LNA leader Khalifa Haftar said in a public broadcast that the blockade on oil exports, which has been in place since Jan. 18, would be lifted immediately.
Haftar said the agreement had "conditions and guarantees that ensure a fair distribution of wealth and spare it being plundered or used in terrorism financing".
That statement was later confirmed by GNA Deputy Prime Minister Ahmed Maiteeq who said certain conditions to pave the way for a resumption of oil production and exports had been agreed.
Earlier in the day, NOC reiterated it will not lift force majeure on crude exports from the blockaded oil terminals unless the facilities were demilitarized.
"All armed groups...must leave all oil fields and ports and make them demilitarized zones. Otherwise, any agreement is a path of imagination," NOC chairman Mustafa Sanalla said.
The conflict between the GNA and LNA has almost completely halted oil output.
On Jan. 18, eastern tribes, supported by the LNA, halted exports from five key oil terminals, which sharply reduced the country's crude production, pushing it to the lowest since the 2011 civil war.
Libya is currently pumping around 120,000 b/d compared with around 1.10 million b/d before the blockade.
The force majeure on crude loadings out of the terminals of Brega, Es Sider, Marsa el-Hariga, Ras Lanuf and Zueitina remained in place.
NOC has previously warned of the permanent damage to the oil sector from both a budgetary and technical perspective, which will have severe repercussions on its future output capacity.
In July, Sanalla said the output recovery would be slow as the closure of several oil fields had affected the oil reservoirs, which had undergone abrupt mechanical, structural and chemical changes.
The agreement between GNA and the LNA includes a few principles, on which the resumption of Libyan oil exports and production is based, according to the agreement statement released by Maiteeq.
These includes the formation of a joint technical committee, which will "oversee oil revenues and ensure the fair distribution of resources."
The committee will "control the implementation of the terms of the agreement during the next three months, provided that its work is evaluated at the end of the 2020 and a plan is defined for the next year," the statement said.
The distribution of oil revenues has been at the heart of the blockade.
Haftar controls the bulk of Libya's key oil infrastructure, but does not have access to oil revenues via the Central Bank of Libya. Neither does he hold the reins of NOC.
The committee will overtake some key tasks, which includes preparing a "unified budget that meets the needs of each party" and "the reconciliation of any dispute over budget allocations".
The joint committee will also "require the Central Bank of Tripoli to cover the monthly or quarterly payments approved in the budget without any delay, and as soon as the joint technical committee requests the transfer".
Libya holds Africa's largest proven reserves of oil and its main light sweet Es Sider and Sharara export crudes yield a large proportion of gasoline and middle distillates, making them popular with refineries in the Mediterranean and Northwest Europe.
Traders expected the resumption to be gradual but with quite a few barrels already in storage in ports such as Es Sider and Brega, some of these were expected to be exported very soon, they added.
"We expect exports to be on stream anytime soon, 12 million barrels of medium sweet and light sweet crudes in storage will come out soon," said a crude oil trader active in the Mediterranean crude market.
The return of key Libyan oil grades will have an impact on Mediterranean light sweet crude complex pricing, with Azerbaijan's Azeri Light, Algeria's Saharan Blend and Kazakhstan's CPC Blend likely to see a fall in values, trading sources added.
"Es Sider might be one of the first [ports] to see an export," the trader said. "This will put pressure on the sweet crude complex in the Med specially on Saharan Blend and Azeri Light, which are the most similar in quality and also the last barrels to trade."
Demand for Libyan crudes has also gradually increased among Asian refiners over the past two years, with renewed interest for sweet crudes from China, Malaysia and Thailand.