Militia continues to threaten Libyan oil sector
On 15 December, Libya’s state-owned National Oil Corporation (NOC) declared force majeure at Zawia Refinery after militia clashes set fire to fuel storage tanks.
This is the first time the country’s oil sector has been targeted since September. A period of relative political calm has allowed Libya’s crude exports to recover from a low of 515k b/d in September to 1.25m b/d so far in December, according to Vortexa. Before Libya’s civil war in 2011, the country exported around 1.5m b/d.
Libya’s crude oil production hit 1.238m b/d in November, according to OPEC. On 5 December, NOC said total production of crude oil and condensates reached 1.422m b/d, its highest for 11 years and above its 2024 production target of 1.4m b/d.
The 120k b/d Zawia refinery, Libya’s largest functioning refinery, remained shut down after fighting near the facility on Sunday caused a fire which severely damaged storage tanks. The nearby oil export terminal is unaffected. The shutting of the refinery and the damage to its tanks could redirect some crude oil for export.
Port agents said that production at Sharara oilfield, which feeds the refinery and export terminal at Zawia, has been cut from 300k b/d to 240k b/d to manage flows because of high stock levels. In November, crude exports from Zawia were at 174k b/d, about 16% of Libya's total seaborne crude exports.
VLCC rates languish despite Chinese import growth and a recent swing to compliant fleet
The US imposed sanctions on another nine vessels and eight companies involved in the trade of Iranian oil last Friday, making it more difficult still for Chinese independent refiners to access discounted Iranian crude.
Despite gaining market share over the shadow fleet for fuel moves to China, and despite two months of growing Chinese crude imports, VLCC rates have yet to witness a recovery from the lows reached last week.
A narrower price premium of unsanctioned crude relative to Iranian barrels, recovering refining margins, and additional import quotas pushed Chinese crude imports to year-highs in November. At the same time, cost increases relative to compliant grades reduced the appeal of sanctioned grades, meaning more arrived in China on compliant tankers in November and December.
China’s imports from Iran fell to 1.15m b/d in November from 1.4m b/d in October. At the same time, China’s imports from non-Iran Mideast Gulf countries rose to 4.95m b/d in November and are on track to surpass that in December. This lifted the country’s total crude imports to 10.2m b/d in November, its highest this year, from 9.49m b/d in October and 9.78m b/d in November 2023. Imports from West Africa are on track to reach their highest since August at 1.1m b/d so far in December.
Tougher sanctions on Iran have already shrunk the country’s exports. Iran’s total crude exports fell from 1.62m b/d in September to 1.55m b/d in October and 1.23m b/d in November, according to Vortexa data. This trend appears to be continuing this month. In the first 15 days of December, Iran’s crude oil exports were 1.2m b/d, according to TankerTrackers, compared to a running average of 1.7m b/d for the first 15 days during the previous three months.
Surprisingly weak Chinese oil demand in the second half of this year is the main reason for a lacklustre fourth quarter for VLCCs. Chinese oil firms slashed crude imports in October. Imports of unsanctioned grades, particularly those from the Mideast Gulf, fell most steeply because of their relatively high cost. November and December have seen a reversal of this trend but with little benefit for compliant VLCC rates.
Mideast Gulf to China VLCC freight (TD3c) sank to its lowest this year last week. TD3c was $17,598/day on 13 December, compared to $36,750/day at that time last year. It recovered slightly to $18,821/day on 18 December with the start of bookings for January-loading in the Mideast Gulf before dipping again on 19 December to $18,726/day.
This is likely to continue next year as Chinese refiners, battered by thin margins and a faltering economy, continue to be increasingly price-sensitive. China’s economy is showing some signs of improvement. Factory activity expanded at the fastest pace in five months in November. If Beijing keeps injecting stimulus, the recovery is likely to continue. Rapid adoption of electric vehicles is cutting gasoline consumption and diesel demand is also weaker, having been hit by the switch to trucks powered by LNG. Much of November and December’s surge appears to have gone into storage with crude processing rates subdued in November. Tighter supply lifts the cost of the barrels, making them less attractive relative to other grades for price-sensitive Chinese buyers. Iranian Light was trading at a $2/bl discount to Brent, the highest discount over two years, partly due to higher risk premiums on sanctioned tankers.