The Mediterranean region's capacity to absorb returning sour crude output in 2025 will hinge on nimble pricing strategies by Saudi Arabia and Iraq.
The Mediterranean imported around 4.67mn b/d of crude in 2024, down from 4.92mn b/d in 2023, Vortexa data show. The drop follows heavy spring refinery maintenance, unplanned refinery outages and weak product margins that prompted some refiners in the region to cut crude runs.
But competitive pricing by Mideast Gulf crude producers could help entice Mediterranean buyers during the seasonal uptick in demand for transport fuels this summer, and the scheduled completion of repairs at Motor Oil Hellas' 180,000 b/d Corinth refinery in Greece in the third quarter could help absorb a planned production increase from Opec+.
Eight Opec+ members ꟷ Saudi Arabia, Iraq, Russia, Kuwait, the UAE, Kazakhstan, Algeria and Oman ꟷ agreed last month to postpone the return of 2.2mn b/d of production cuts for a third time to April 2025. They now intend to return this over an 18-month period rather than the previously planned 12-month period.
Saudi Arabia has accounted for 1mn b/d of this 'voluntary' production cut since July 2023, but Saudi crude deliveries to the Mediterranean still edged up to 241,000 b/d in 2024, from 238,000 b/d in 2023. State-controlled Aramco's consistent cuts to its formula prices in recent months left its December 2024 prices for Mediterranean customers on average $2.13/bl cheaper than its January 2024 prices. Comparatively, Aramco's Mediterranean formula prices rose on average by nearly $5/bl across 2023 when sour crude was in short supply but demand was higher.
This adaptive pricing strategy has helped Aramco retain market share in the Mediterranean at a time of overall weaker demand.
Deliveries of Iraq's Basrah crude to the Mediterranean region declined by 27pc on the year to average 409,000 b/d in 2024, largely due to longer journey times around South Africa to avoid Yemen-based Houthi attacks on shipping in the Red Sea. But Mediterranean interest in 2025 could increase should Basrah be forced out of Asia-Pacific, where Canada's Trans Mountain Expansion has enabled increased Chinese purchases of Canadian heavy sour Cold Lake and Access Western Blend, which require lighter crudes for blending.
The EU embargo on seaborne imports of Russian crude has cut off Europe's access to medium sour Urals, with the exception of non-EU member Turkey. Northwest European buyers can turn to Norway's Johan Sverdrup grade but Mediterranean buyers have been left without a local medium sour crude since Kirkuk exports, from Turkey's Ceyhan port, were halted in March 2023 by a dispute between Iraq and the Kurdistan Regional Government. Even if Kirkuk exports resume in the coming months, it is unclear if these will return to previous levels of around 500,000 b/d, given upstream challenges in Iraqi Kurdistan and Iraq's Opec+ commitments.
In the absence of local rivals, Saudi Arabia and Iraq are well poised to direct more supply into the Mediterranean, with competitive pricing. Aramco's ability to ship from Egypt's Mediterranean Sidi Kerir port has increased its appeal as it delivers supplies within days.
Rebuilding confidence in Libya
Libya's recent two-month blockade, sparked by a leadership crisis at the central bank, again shone a light on the country's fragile politics. Although output has recovered since force majeure ended on 3 October, confidence in Libya's ability to reliably supply crude has waned, diminishing its appeal in an oversupplied market.
Spot assessments for Libya's largest grade, Es Sider, averaged a $1.46/bl discount to the North Sea Dated benchmark in November, and state-owned NOC set the grade's November formula price at a $2.25/bl discount for term customers. Both were the lowest since December 2022, as sellers aimed to entice buyers and allay reliability concerns.
But Libyan production has proven resilient over the past decade, quickly rebounding after armed conflict and several politically-motivated disruptions. NOC reported crude and condensate output at a near 12-year high of 1.4mn b/d in early December. By the end of last month, the company said it had increased to 1.47mn b/d.
And foreign producers are still keen on the country, with Italy's Eni, BP, Austria's OMV and Spain's Repsol resuming exploration campaigns, the first since 2014.
