LIBYA - Saudi Supply Cut.

In monthly notices sent to its customers, Saudi Aramco on July 11 said it would continue to supply its Asian lifters with about 9.5-10% less than their contractual volume in August, as it has done since April. The reduction was made in more than one crude oil grade. It has also informed Western IOCs it would not increase shipments in August, in line with expectations as OPEC maintained that a shortage of fuel, not crude, was driving prices.

"Saudi's serious about keeping supply cuts", said Tony Nunan, a manager of risk management at Mitsubishi Corp, adding: "Last year, they had been ramping up production, pushing stocks sharply higher, and at the end of the summer oil prices plunged. This time, they are cautious". The curbs were imposed as part of OPEC's pledges late last year to take 1.7m b/d of output off the market in order to draw down swollen crude inventories and support prices, although so far they have achieved only half of their mission.

On July 10, as tensions mounted between Iran and the US and speculators kept pouring money into energy markets, Brent rose 79 cents to $76.57 after trading up to $76.63 earlier in the day. WTI was up 68 cents at $72.87. Speculators boosted their net long positions at NYMEX to a record. Olivier Jakob, an analyst at Swiss-based Petromatrix, noted the continued rise in prices and open interest - the number of contracts not closed - pointed to more investment money flowing into oil in recent days. Citigroup analysts calculated the influx accounted for over $10 of the move higher since the start of 2007, when Brent was below $60/b.

The Libyan Exports: The popularity of most Libyan crude oils in Europe has declined because of tighter sulphur limits on diesel imposed by the EU since the autumn of 1996. A major part of Libya's exports consists of light crude oils which are not sweet enough for EU specifications - like Zueitina, 42[degrees] API with 0.3% sulphur. But an increasingly important volume of Libyan crudes are moving to the US market.

Libyan crudes have been promoted to compete with sweeter grades sold by Algeria and other sources. Algeria's Saharan Blend (SB), 46[degrees] API with 0.05% sulphur, is more popular as it yields high quality diesel and other premium fuels.

Until late 1998, NOC had been pricing Zueitina at SB's level and most term clients had declined to renew their contracts. From early 1999 NOC has been compelled to price Zueitina and other crudes at levels acceptable to most offtakers. Several Libyan crudes have a high wax content, as in the case of Bu Attifel, Amal, Sarir, Messlah and es-Sider. Some of the country's crudes are heavy and sour, like el-Bouri (26[degrees] API with more than 2% sulphur) and Amna (36 deg. API with 0.4% sulphur). Amna is popular as it has a high yield of good fuel oil and is similar to Russia's Siberian Light.

Al-Sharara, a light/sweet grade, is the most popular among Libya's crudes. Produced by Repsol in the Murzuk Basin, this is 44[degrees] API with only 0.04% sulphur. It has been on the Mediterranean market since mid-1998. Repsol has spent heavily on developing al-Sharara field and nearby structures (see gmt2LibFieldsJul9-07).

Al-Sharara is priced at a premium over Dated Brent. It has low metals content and pour point making it more popular than the SB, Tunisia's Zarzaitine and other sweet grades.

Exports of very sweet crude oils rose with the start up in early 2004 of the Murzuk Basin Elephant field, operated by Lasmo. Its capacity is 150,000 b/d and will be expanded to 250,000 b/d as its reserves in place are said to be about 2 bn barrels. Lasmo's partners in this are Agip and Pedco of South Korea, with Lasmo having been taken over by Agip's parent group ENI in December 2000.