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Security Concerns Over Libya’s Oil Attracts Huge Freight Premiums

oil tanker

Persisting security concerns over Libya’s oil export capacity and the political divisions in the country fetch large tanker freight premiums for shipowners daring to call at Libyan ports for crude oil loadings, shipbroker and shipowner sources told Platts on Friday.

Earlier this week, Libya’s crude oil production exceeded 1 million bpd for the first time since June, when port blockades and a kidnapping caused production outages that within a month brought production to as little as 670,000 bpd.

Despite the production recovery, fresh protests at the oil terminal and refinery servicing the country’s largest oil field, Sharara, threaten to shut down production again, with sources telling Platts they expect a complete shutdown of the field.

Amid this volatile security situation, with militias fighting at ports and oil export disruptions, many shipowners shun transportation of Libyan oil cargoes. This in turn raises the premiums of freights on Libyan routes by up to 10 points on the so-called Worldscale—used to calculate freight rates for oil tankers—compared to freight rates on cargoes in the Mediterranean that don’t involve Libyan routes, sources told Platts.

According to one shipbroker, three or four shipowners are not calling at Libyan ports, while others review cargoes on a case by case basis.

Then the political rivalry between institutions in the west and the east of Libya, including between two rival oil companies, also adds to the uncertainty for shipowners who could find themselves at odds with the internationally recognized National Oil Corporation (NOC) if they lift a cargo marketed by the rival oil company.

The Libyan National Army (LNA) of eastern strongman General Khalifa Haftar recaptured in June four ports in the Oil Crescent in the east from armed groups after a week of fighting, and handed their control to the unrecognized oil company in the east. Two weeks later, Haftar agreed to hand back control of the ports to the internationally recognized NOC, and Libya reopened its eastern oil ports.

The port closure had blocked 850,000 bpd of Libya’s oil (nearly all Libyan production) from being exported from the four ports for more than two weeks. This major disruption resulted in Libyan crude oil production slumping from 962,000 bpd in May to an average 721,000 bpd in June and further down to 664,000 bpd in July, according to OPEC’s secondary sources.

By Tsvetana Paraskova for Oilprice.com

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