IEA Deputy Head, Richard Jones, said there appears to be no supply gap from Libya and the market is well supplied. So well supplied that Saudi Arabia's new super light blend of crude oil has not found a home.
When Libyan production declined Saudi Arabia said it would pump "any quantity and any quality" needed to fill the shortfall. Since Saudi Arabia does not really have any large quantity of light sweet crude equivalent to Libyan production everyone wondered where they would get it.
Originally they floated a plan to buy light crude elsewhere and replace it in the market with a heavier grade of crude at a discount. For example, if a refiner was buying light crude but had the ability to refine a heavier grade Saudi could swap a heavier grade of readily available oil and send the light sweet crude to refiners who did not have that capability.
Apparently there were no takers on that idea. Instead Saudi has taken some Arab extra light crude and blended it with some slightly sour crude to produce what they are calling "super light crude." The idea was to create a product that would replace the Libyan production.
Unfortunately nobody stepped up to buy that super light product for one material reason. Libyan light sweet crude has a very low 0.01% to 0.07% sulfur content. The new Saudi super light blend has a 0.5% sulfur content or roughly seven times the 0.07% and 50 times the 0.01% variety. In Europe, where most of the Libyan crude goes, they have very strict EPA standards and refiners don't want this super light but sour crude.
This new blend has an API gravity of 44 making it lighter than the Libyan grades but that sulfur content is the killer.
Saudi does have a light crude called Arab Extra Light, which in the past has only been sold under long-term contracts. To combat the current production loss they have decided to sell some of that crude on the spot market. The first load of one million barrels was scheduled to ship on April 4th. Saudi Aramco is going to position it in the Mediterranean where it will be offered to potential buyers.
Despite the current price of oil at $110 for WTI and $122 for Brent the market does seem to be well supplied. The IEA Deputy said "We kept calling and asking our countries and companies, if they were short, and nobody ever said they were short." Also, "Everyone said the lack of Libyan supply is a source of concern because it reduces surplus capacity worldwide but so far there is no shortage."
It appears to me we are just seeing a growing security premium and I am sure those evil speculators are adding to that premium. Now that Qaddafi is attacking his own oil facilities to prevent rebels from selling any oil, it will take even longer to repair and rebuild once the conflict is over. At present there does not appear to be a conclusion in sight and this could drag on for months. Several articles this week have discussed the need to put troops on the ground in order to control the situation and aid the rebels. A rebel force was bombed by NATO on Thursday for the second friendly fire event in the last two weeks.
The Nigerian elections over the next few days will be another potential problem but the MEND rebels claim they have called off any attacks until they see who is elected. I believe Nigeria is no longer a problem but until the elections are over we can't be sure.
With expiration of the Brent contract on the 14th and the WTI contract on the 19th we have an excellent possibility for a break in prices. We have already seen profit taking in energy equities this week and I suspect it will continue. I am recommending readers trim positions temporarily.
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The OilSlick Newsletter is based on the expectations for global oil production of light sweet crude to peak and begin to decline in the 2012-2014 timeframe. I am calling this "Peak Sweet™" instead of Peak Oil. This is the point where global production of conventional light sweet crude supplies can no longer be supplemented by enough oil sands production, deepwater oil production, biofuels and natural gas liquids to offset the decline in existing fields. The roughly 6% annual decline of existing production due to depletion is larger than the rate of new discoveries and new production being added each year. The Peak Sweet™ countdown clock is ticking and time is growing short. Peak Oil will arrive shortly thereafter. Are you prepared?