Libya disruption boosts light crude premium

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By Javier Blas in London

The premium on high quality light, sweet crude has risen to its highest in nearly two years as European refiners seek alternative supplies to offset production losses in Libya.

The crisis in Libya is halting production of some of the world’s most coveted oil. Light, sweet crudes tend to trade at premiums to heavier grades because they yield higher value gasoline.

As refineries seek alternative supplies of similar high quality oil in west Africa and the Caspian region, they are pushing up price differentials, traders said.

The premium paid for Nigeria’s high quality, low sulphur Bonny Light crude oil surged on Monday to $2.53 a barrel more than Brent, the highest in almost two years, according to Bloomberg data. The premium has risen about 40 per cent over the past month.

“It says a lot about the state of the world that European refiners are seeking Nigerian oil as a haven against the turmoil in north Africa,” a London-based oil trader said.

Traders reported similar jumps in the cost of other west African and Caspian premium crude oil grades.

The International Energy Agency, the western countries’ oil watchdog, said that between 850,000 and 1m barrels per day of crude oil production were now shut down in Libya, up from an estimate of 850,000 b/d on Friday .

“The level of production outages may be creeping higher,” said David Fyfe, head of oil markets at the IEA.

Libya’s crude oil stream includes Es Sider, whose light density and low sulphur content makes it an alternative to light, sweet global benchmarks such as Brent crude or West Texas Intermediate.

The price of Brent crude, the global benchmark, was little changed on Monday. ICE April Brent traded three cents higher at $112.17 a barrel.

Nymex April West Texas Intermediate fell 27 cents to $97.59 a barrel.

Analysts and traders are bracing themselves for sustained supply disruption in Libya, which could tighten global oil markets.

Francisco Blanch, head of commodities research at Bank of America Merrill Lynch in New York, said that even more worrying was turmoil in countries such as Algeria, Syria, Yemen or Saudi Arabia. “The risk of continued tensions in the region remains high,” he said.