It's not just about oil
It is impossible to write any commentary on the tanker market without mentioning the current crisis in Libya. Libya is the latest North African state to experience turmoil which this time around has had an even more profound effect on oil prices. The politics of the region are very much interwoven with the thirst of the industrialised nations need to maintain the supply of oil, but at an affordable price.
While OPEC member Libya is very much a minor producer at 1.6M b/d (2 per cent of world production), the major concern is not just the loss of the light sweet crude, but also the continuing effect on oil prices. The latest crisis sent Brent prices spiralling yesterday to just above $110/bbl, a 29-month high.
Almost 80 per cent of Libyan crude exports are destined for Europe, where the light sweet crude provides the base load input to refineries to make the much sought after low sulphur fuels demanded for consumption in European waters. It would be relatively easy for the OPEC cartel to pick up barrels from other member states and Saudi Arabia has already indicated that it would meet any supply shortfall.
For the tanker market, any replacement barrels will be made up by more long haul cargoes from outside the region which could give support to the tanker market. There is clearly a great deal of uncertainty, but at this moment the indications are that the six main exporting terminals in Libya are operating, although reports state that actual oil and gas production was halted earlier in the week.
According to the IEA, storage tanks at working ports in Libya will provide oil onto tankers for the time being. However to make matters worse, bad weather has set in to the region which has added to the confusion.
The majority of the country's oil industry, including the major export terminals, are based on the eastern side of the country and as such are currently in government opposition control. Many of the much needed foreign production and refinery workers have largely fled the country with the likely result that there will almost certainly be considerable loss in production even if there is a swift resolution to the crisis...