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Libyan freight premiums subside amid consistent output

Highlights

Libya remerges as main export hub in Mediterranean

Aframaxes, Suezmaxes freight premiums ease

Libya poised to export 1.13 million b/d in March

New York — Freight premiums for Aframax and Suezmax tankers loading from Libya have subsided as the North African producer has once again emerged as the main export hub in the Mediterranean crude market.

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Freight rates for voyages out of Libya have been priced at a premium over standard cross-Mediterranean Aframax assessments in the last six months amid geopolitical uncertainty and prompt laycan dates.

However, the premium on Aframax and Suezmax tankers has narrowed since late February, according to S&P Global Platts data. The Aframax Libya-to-Mediterranean run was assessed at w92.5 on March 4, on par with the Ceyhan-to-Mediterranean run.

"Libyan port costs are cheaper than what you would get from a vanilla [standard] cross-Mediterranean run," a charterer said. "In addition, Libya's output is steady and there is little uncertainty now."

Market participants said premiums for Libyan loadings had averaged between w2.5 and w5 points for Aframax tankers prior to the oil blockade, as several owners were reluctant to load at Libyan ports.

However, since the production cuts by OPEC+ members and lower freight rates, fewer owners have been selective, hence increasing the pool of tankers available for fixing, sources said, narrowing the premium even more.

Premiums on Suezmax tankers were also reported to have shrunk. Recent fixtures on the Mediterranean-to-East run showed slim premiums of $50,000 for Libya loadings compared with other loading ports in the Mediterranean, according to Platts data.

Libya top exporter in Mediterranean basin

Libya crude exports have climbed since mid-September when the Libyan National Army lifted an eight-month oil blockade. Demand for the country's light sweet crude has since been very strong despite low refining margins and a well-supplied sweet crude market given its competitive price, traders said.

The slightly more stable political situation in the OPEC member state is also another reason for the reduction of the freight premium. Last month, Libya formed a Government of National Unity (GNU) along with the help of the UN, with elections planned for December. This relative stability comes after almost three years of a prolonged civil war between the Government of National Accord and the self-styled Libyan National Army, which resulted in a dramatic fall in the country's production last year.

Libya has once again risen to become the top exporter of crude oil in the Mediterranean since November, only two months after having lifted force majeure at various export locations. So far this year, Libya has exported 1.08 million b/d, while Turkey and Egypt, by comparison, have shipped 981,000 b/d and 609,000 b/d, respectively, according to data intelligence firm Kpler. The crude exported from Turkey originates from Azerbaijan and Iraq's semi-autonomous Kurdistan region.

Loadings in Libya of crude and condensate are scheduled to average around 1.13 million b/d in March, according to the provisional loading program seen by Platts. Libyan exports seesawed last year, from a seven-year low of 90,000 b/d to in March to a two-year high of 1.19 million b/d in December.

Since December, Libyan output has fallen slightly due to problems arising from aging infrastructure and grievances over salary payments to the Petroleum Facilities Guards, which led to a halt in crude exports from some of Libya's key eastern terminals.

Libya's oil sector also took a recent hit when some buyers canceled purchases of Amna, Abu Attifel and Zueitina grades after high mercury levels were detected in the cargoes. High levels of mercury can be very toxic, posing concerns for refiners due to potential damage to refining units. However, the situation has been resolved, according to trading sources.

Freight rates draw support from Libyan production

Tanker owners in the Mediterranean basin welcomed the comeback of exports from Libya after the eight-month blockade.

"The comeback of Libya was a relief for the oil tanker market amid production cuts and low demand from end users," a broker said. "However, it did not prevent owners from seeing negative earnings a few times since June 2020."

Premiums for Libyan Aframax fixtures were reported reaching as high as w30 points over cross-Mediterranean runs in September. The premium has since fallen back as geopolitical uncertainty eased and cargo output rose.

Libyan port costs were reported between $12,000 and $130,000 for Aframax tanker loadings, with Zawia and Zueitina remaining the most expensive.

"The fact that two big tanker owners still refuse to load Libyan cargoes has maintained the premium in the last few months, preventing freight rates from Libya from going lower," a second charterer said.

In addition, remote pilotage was reported to be only available at the ports of Es Sider, Farwah, Ras Lanuf and Bouri, hence increasing the costs for loading at other ports as the pilot must come onboard to moor the vessel.