By Barani Krishnan
Investing.com – What should have mattered long ago to crude prices — a supply squeeze in Libya — is finally kicking in, extending the market’s rebound from oversold conditions.
Adding to the upside were Saudi remarks likening China’s viral pandemic to a “burning house” that needed a “fire brigade” like OPEC to put out and U.S. sanctions on a unit of Russian energy firm Rosneft for its alleged support of Venezuela’s government.
West Texas Intermediate, the U.S. crude benchmark, settled up $1.20 Wednesday, or 2.3%, at $53.49.
Brent, the global benchmark for crude, settled up $1. 37, or 2.4%, at $59.12 per barrel.
Wednesday’s rally extended a rebound that began last week after five previous weeks of losses in WTI and Brent.
While some of the surge could be attributed to higher risk appetite across markets due to reduced worries over China’s viral pandemic, much of the gains had to do with the shutdown in Libyan crude supplies. Libya has Africa’s largest oil reserves and is caught in decade-old factional fighting for power that erupted after the fall of dictator Muammar Gaddafi.
Ceasefire talks in the Libyan civil war broke down amid reports that the Libyan National Army, led by renegade General Khalifa Haftar, had destroyed a Turkish ship in the Port of Tripoli, which it said was carrying weapons and ammunition.
“The oil market is starting to realize that as bad as the demand destruction is from the coronavirus, the lack of exports from Libya might be meeting the oil demand destruction barrel for barrel,” said Phil Flynn, analyst at Chicago’s Price Futures Group.
“Libya was exporting 1.2 million barrels a day," Flynn said. "That is more than the demand destruction estimates of about 400,000 barrels a day to about 1 million a day. Whatever the real demand destruction is, it's clear that Libya is offsetting a lot of that and after years, the odds of Libya oil exports coming online have gone down dramatically.”
Saudi Energy Minister Prince Abdulaziz bin Salman, meanwhile, likened the impact of China’s Covid-19 crisis on oil as a house on fire that needed urgent OPEC intervention, Bloomberg reported. The Saudis and the rest of OPEC have proposed a 600,000-barrels per day supply cut to mitigate lost demand from the virus, but key ally Russia isn’t agreeing to the plan yet.
On the sanctions side, the Trump administration targeted a unit of Russia’s Rosneft PJSC for maintaining ties with Venezuela’s Nicolas Maduro and its state-run oil company. The restrictions come with a three-month wind-down period that expires May 20. Though the sanctions don’t really impact day-to-day trades in crude, they added to the geopolitical tensions in oil, boosting prices.