World looking beyond Libyan ‘sweet crude’ as conflict rages

By Andrew Beatty, AFP

WASHINGTON–One month into its unrest, the shutdown of Libya’s oil fields is creating strains in the world’s oil networks as consumers scour the world to replace its highly-prized “sweet” crude. With strongman Moammar Gadhafi entrenched and the conflict with rebels raging on, producers see no quick return to the market for Libyan crude. That is sparking a search for reserves elsewhere in Africa and around the globe. On paper it should be easy to substitute Libya’s 1.7-million-barrel a day production, which meets only two percent of worldwide demand. Oil hyper-power Saudi Arabia has even offered to pump enough to match the Libyan shortfall. But oil markets worry about quality as well as quantity. Libya’s low-sulfur “sweet” crude is much prized for being easy and cheap to refine into petrol. Much of Saudi Arabian crude is lower quality and more difficult to refine.

“It’s forcing people to look at what their options are going forward, because it now looks clear that Libya supply might be disrupted for some time,” said Bhushan Bahree, an oil analyst with IHS CERA. Unfortunately, finding crude of the same quality is not easy. Only a handful of suppliers fit the bill. “The crudes that would be very similar would be Algeria, Angolan and Nigerian. None of them are exactly the same, but they are very similar,” said Bahree. Demand for those crudes has surged since the crisis began, forcing up prices. Nigeria’s top contract “Bonny Light” and Algeria’s “Saharan Blend” are now being listed, respectively, at a US$3.40 and US$2.85 per barrel premium over London’s main contract — roughly double the premium in mid-February. “Nigeria is pumping all they can” to meet demand, said oil analyst Mike Fitzpatrick of the Kilduff Report, who noted Nigeria itself is far from stable. The economics of refining make it difficult to decide if that premium is worth paying. Until now oil analysts believe the true extent of the shortfall has not been realized, because many refineries are content to use up stockpiles.