(Bloomberg) -- The return of Libyan oil exports is pressuring crude prices from the North Sea to the Mediterranean.
The Mediterranean refiners are scaling back purchases of crudes outside the region. A North Sea Ekofisk cargo, which was originally scheduled to be shipped to Italy, was just resold to a refiner in northwest Europe. Differentials of many grades have fallen by more than $1 a barrel over the past two weeks.
The resumption of Libyan production comes at a time when the European crude market has already been beset by poor refining profits, refinery outages, and more recently, surging freight rates. The gloom in the physical market is another headwind for oil futures, which shed nearly 5% Tuesday despite concerns over an escalating crisis in the Middle East.
Libya’s oil production has doubled since a deal in late September resolved a disagreement between two rival governments over who should run the nation’s central bank. The measure had hindered output for almost two months. The export ramp up also boosted freight rates as refiners raced to find tankers to transport the north African country’s crude.
With ample local supply, refiners in the Mediterranean are increasingly reluctant to buy cargoes which require long-haul voyages. The tanker Eagle Bintulu, which loaded an Ekofisk cargo in early October, is diverting to Le Havre in France, having originally been destined for the Italian port of Trieste, from where it can be piped to multiple European oil refineries.
Prices of sweet, or low-sulfur, crudes are falling in Europe. Premiums of Azeri Light, a favorite grade among Mediterranean refineries, fell by more than $1 since Libya resumed production. Caspian CPC Blend has flipped into a discount from a premium.
Norway’s giant Johan Sverdrup was sold at a discount of $2 to its benchmark, the international marker Dated Brent, on Monday. That’s the lowest in more than six months.
Libya’s return has also cut into demand for crude from Nigeria, where some supplies for loading this month were still hunting for buyers, according to traders.
--With assistance from Bill Lehane and Alex Longley.
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