Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Oil Down Over 2% on Week, Libya Adds to Gloomy Outlook

Published 09/25/2020, 02:59 PM
Updated 09/25/2020, 03:01 PM
© Reuters.

© Reuters.

By Barani Krishnan

Investing.com - Crude prices logged their third weekly loss in four on Friday, as analysts warned of a gloomier near term for the market after an unexpected surge in production in politically-liberated Libya added to concerns about demand.

New York-traded West Texas Intermediate, the key indicator for U.S. crude prices, settled down just six cents, or 0.2%, on the day at $40.25 per barrel. For the week, WTI lost  2.1%.

London-traded Brent crude, the global benchmark for oil, was down just 10 cents, or 0.2%, at $41.84 by 2:45 PM ET (18:45 GMT). For the week, Brent lost 3%.

Since last week’s OPEC+ meeting that more or less reaffirmed production cuts till year-end, crude prices have been pulled both ways by mixed variables.

Lending support was the notion of the output cuts that could better balance the market, helped further by supportive  U.S. crude stockpile draws.

Weighing on the market was an unexpected peace deal between warring factions in Libya that could bring up to 1 million barrels more to the market.

Libya’s National Oil Corp said this week it expects production to rise to around 260,000 barrels per day, or bpd, by next week, up from some 100,000 bpd before the blockade of its oil ports and oilfields lifted by forces aligned to renegade general Khalifa Haftar. 

Analysts estimate now that total Libyan production could reach 550,000 bpd by the end of the year and nearly 1 million bpd by mid-2021. All that for a country that did not export a single barrel from January due to the civil war forced by Haftar. At its peak in 2008, Libya produced nearly 1.8 million bpd.

The shifting market dynamics could force OPEC back to the drawing board, to figure out what to do with all that unexpected new supply. 

“We do not need the extra oil,” Marco Dunand, Mercuria’s co-founder and Chief Executive told Bloomberg in an interview this week, referring to the higher Libyan output.

Dunand said global oil stocks increased by 500,000 to 1 million bpd in September but will be drawn down by about 1 million bpd in the fourth quarter.

He added:  “We see a fair amount of oil going into ships, into floating storage, now. We are filling up both tankers as floating storage and onshore tanks in September. There has been a slow-down in the global rebalancing process.”

Standard Chartered (OTC:SCBFF) analyst Emily Ashford (NYSE:AINC), meanwhile, told a Bloomberg-hosted panel discussion that a possible collapse in the OPEC+ deal is the biggest downside price risk to the oil market.

Another problem noted by analysts at Bloomberg: Time spreads between front-month and nearby contracts signaling further weakness. The spreads between the two nearest December contracts for both U.S. and global benchmark crude futures have lately moved deeper into contango — meaning losses for those rolling such positions month after month.

Reports also emerged earlier this month that commodity traders were chartering more tankers to store crude oil offshore, sparking concern we could see something like a repeat of this spring when hundreds of millions of barrels of unsellable oil had to be dumped on tankers because onshore storage was full. After the lockdowns ended, oil sales began improving but not for jet fuel, which remains the worst demand component of the lot. 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.