Libya’s Force Majeure
Jan. 12, 2024
Protests in Libya continue to keep approximately 300,000 b/d of supply off the market following the shutdown of Libya’s largest oil field last week. The shutdown could weigh on January Esharara exports from the Zawia terminal. Prior to the force majeure, Libyan oil fields and terminals have enjoyed a relatively disruption-free 12 months, making last year's crude exports the second-highest since the civil war in 2011. However political instability has been recurring since the overthrow of Muammar Gadaffi over a decade ago and now threatens the country’s exports headed into 2024. The recent shutting of the oil field saw total Libyan oil output fall from approximately 1.17 million b/d in December 2023 (Kpler) to 870k b/d for January (Figure 1).
Figure 1: Libya Crude Oil Figures
Source: McQuilling Services, Kpler, St. Louis Fed
The situation in Libya adds to volatility in the production figures expected from OPEC headed into the new year. We note the developments in Libya did not deter Saudi Arabia from cutting the latest official selling prices (OSPs) for February loadings, potentially indicating Saudi is comfortable with their current supply fundamentals. Nevertheless, this development, paired with the geopolitical situation in the Middle East, should keep freight rates elevated for tankers operating in the Northern Africa and Red Sea regions. We have seen the Aframax Cross-Med trade jump by over 30 WS points since the beginning of the year, likely due to multiple factors. The reduced exports from Libya have forced buyers to find alternate sources, some of which could be sourced from the US Gulf. As some ships have opted to ballast to the US Gulf to take advantage of more attractive rates, this leaves the vessel supply tighter in the Med. Moreover, some of the Libyan barrels have also been shipped to the Far East via Suezmax tankers. As the Red Sea developments exert upward pressure on voyage mileages, owners are projecting more confidence in bidding freight levels higher.
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