Oil declines as market surplus forecast counters Libya worries

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KEY POINTS
  • Brent crude was down 24 cents, or 0.4%, at $64.35 a barrel at 0309 GMT, after dropping 0.3% on Tuesday.
  • U.S. oil fell 29 cents, or 0.5%, to $58.09 a barrel, having declined 0.3% the day before.
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Jean-Paul Pelissier | Reuters

Oil prices eased on Wednesday, extending declines as the International Energy Agency (IEA) forecast a market surplus in the first half, helping ease concerns about disruptions that have slashed Libya’s crude output.

Brent crude was down 24 cents, or 0.4%, at $64.35 a barrel at 0309 GMT, after dropping 0.3% on Tuesday. U.S. oil fell 29 cents, or 0.5%, to $58.09 a barrel, having declined 0.3% the day before.

The head of the IEA, Fatih Birol, said on Tuesday he expects the market to be in surplus by a million barrels per day (bpd) in the first half of this year.

“I see an abundance of energy supply in terms of oil and gas,” Birol told the Reuters Global Markets Forum, while he was attending World Economic Forum meeting in Davos, Switzerland.

“It’s the reason that recent incidents we have seen – with the Iranian general killed, Libya unrest – didn’t boost international oil prices,” Birol said, referring to the U.S. killing of an Iranian commander and retaliation by Tehran that sent prices briefly soaring earlier this month.

Libya’s National Oil Corp on Monday declared force majeure on the loading of oil from two major oil fields after the latest development in a long-running military conflict.

“Market participants are already starting to fade this story – believing that this is a transitory outage,” said Helima Croft, global head of commodity strategy at RBC Capital Markets.

However, Croft warned that the “multi-year proxy war leaves Libyan production at high risk for extended outages and there are no indications that the country is close to turning the corner.”

Unless oil facilities quickly return to operation Libya’s oil output will be reduced from about 1.2 million barrels per day (bpd) to just 72,000 bpd.

Still, U.S. crude production in large shale deposits is expected to rise to record highs in February, although the pace of increase is likely to be the lowest in about year, the U.S. Energy Information Administration (EIA) said on Tuesday.

Away from oil fundamentals, markets have been roiled by the emergence of a new strain of a coronavirus out of China amid concern about the impact of a possible pandemic on economic growth.

Oil prices ease as supply risk concerns fade

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KEY POINTS
  • Brent crude was trading down 30 cents, or 0.5%, at $64.90 per barrel by 0318 GMT, after rising to their highest in more than a week on Monday.
  • U.S. West Texas Intermediate crude futures were down 14 cents, or 0.2%, at $58.40 a barrel.
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A Petrobras oil platform floats in the Atlantic Ocean near Guanabara Bay in Rio de Janeiro.
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Oil prices eased on Tuesday as investors appeared to shrug off earlier supply concerns following a force majeure declared by Libya on two major oilfields amid a military blockade.

Brent crude was trading down 30 cents, or 0.5%, at $64.90 per barrel by 0318 GMT, after rising to their highest in more than a week on Monday. U.S. West Texas Intermediate crude futures were down 14 cents, or 0.2%, at $58.40 a barrel.

“Every time we get a big geopolitical event, the market spikes up but everybody looks at that as a chance of a selling opportunity,” said Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo.

Two major oilfields in southwest Libya began shutting down on Sunday after a pipeline was closed off, potentially reducing national output to a fraction of its normal level, the country’s National Oil Corp (NOC) said.

A document sent to oil traders and seen by Reuters on Monday said the NOC had declared force majeure – a waiver on contractual obligations – on crude loadings from El Sharara and El Feel oilfields in Libya’s southwest.

If Libyan exports are halted for any sustained period, storage tanks will fill within days and production will slow to 72,000 barrels per day (bpd), an NOC spokesman said. Libya has been producing around 1.2 million bpd recently.

Anti-government unrest in Iraq, another major oil producer, also had initially supported oil prices, but officials later said production in southern oilfields has not been affected by the unrest.

Any supply disruptions could be offset by increased output from the Organization of the Petroleum Exporting Countries (OPEC), which could limit the impact on global oil markets, the head of Japan’s petroleum industry body said.

“We are caught in this ($65 per barrel) trading range,” Nunan said. “Anything below and OPEC is going to have a tough time balancing their budgets … and anything above, shale (output) will rebound.”

Another factor reassuring the market is OPEC spare capacity, which stands in excess of 3 million bpd, of which the bulk sits in Saudi Arabia, analysts from ING Economics said in a note.

Adding to supply, Guyana exported its first-ever shipment of crude on Monday, marking the tiny South American nation’s debut as an oil exporter.

Meanwhile, Bank of America Global Research raised its 2020 oil price forecasts on Monday, citing risks to supply from the Middle East, an improving demand outlook and higher OPEC+ compliance to deepen output cuts.

Oil jumps to highest in more than a week after Libyan shutdowns

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KEY POINTS
  • Brent crude futures were up by 74 cents, or 1.1%, to $65.59 by 0331 GMT, having earlier reached $66.00 a barrel, the highest since Jan. 9.
  • The West Texas Intermediate contract was up by 58 cents, or 1%, at $59.12 a barrel, after rising to $59.73, the highest since Jan. 10.
  • In the latest development in a long-running conflict in Libya, where two rival factions have claimed the right to rule the country for more than five years, the National Oil Corporation (NOC) on Sunday said two big oilfields in the southwest had begun shutting down after forces loyal to the Libyan National Army closed a pipeline.
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An Iraqi worker gauges gas emissions from an oil pipe at the Daura oil refiner
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Oil prices rose to their highest in more than week on Monday after two large crude production bases in Libya began shutting down amid a military blockade, setting the stage for crude flows from the OPEC member to be cut to a trickle.

Brent crude futures were up by 74 cents, or 1.1%, to $65.59 by 0331 GMT, having earlier reached $66.00 a barrel, the highest since Jan. 9. The West Texas Intermediate contract was up by 58 cents, or 1%, at $59.12 a barrel, after rising to $59.73, the highest since Jan. 10.

In the latest development in a long-running conflict in Libya, where two rival factions have claimed the right to rule the country for more than five years, the National Oil Corporation (NOC) on Sunday said two big oilfields in the southwest had begun shutting down after forces loyal to the Libyan National Army closed a pipeline.

“If this sort of disruption endures, it’s meaningful … the market is right to be reacting with a bullish tone,” said Lachlan Shaw, head of commodity research, at National Australia Bank in Melbourne.

“It just continues to emphasise, notwithstanding that the world market is clearly in surplus and there are plenty of stocks, the fact is the market still depends on a number of key regions that have heightened geopolitical risk.”

Oil prices had fallen back in the last two weeks. After the outbreak of hostilities between the United States and Iran at the beginning of the year triggered a jump, both sides took steps to pull back from conflict, calming the market’s mood.

If exports are halted for any sustained period, tanks for storage will fill within days and production will slow to 72,000 barrels per day (bpd), an NOC spokesman said. Libya has been producing around 1.2 million bpd recently.

Also on Sunday, foreign countries agreed at a summit in Berlin on Sunday to shore up a shaky truce in Libya, even as the talks were overshadowed by the latest blockade.

German Chancellor Angela Merkel told reporters that the Berlin summit, attended by the main backers of the rival Libyan factions, had agreed that a tentative truce in Tripoli over the past week should be turned into a permanent ceasefire to allow a political process to take place.

Oil drops after US inventory build, new output record

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KEY POINTS
  • Brent crude futures were down 18 cents, or 0.3%, at $63.88 a barrel by 0517 GMT, having dropped 0.3% on Wednesday.
  • U.S. West Texas Intermediate crude fell 24 cents, or 0.4%, to $57.87, after falling 0.5% in the previous session.
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Workers extracting oil from oil wells in the Permian Basin in Midland, Texas on May 1, 2018.
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Oil prices fell on Thursday, extending losses from the previous session after official data showed U.S. crude and gasoline stocks rose against expectations as production hit a record.

Brent crude futures were down 18 cents, or 0.3%, at $63.88 a barrel by 0517 GMT, having dropped 0.3% on Wednesday.

U.S. West Texas Intermediate crude fell 24 cents, or 0.4%, to $57.87, after falling 0.5% in the previous session.

Crude stockpiles in the United States swelled 1.6 million barrels last week as production hit a record high of 12.9 million barrels per day (bpd) and refinery runs slowed, the Energy Information Administration said. Analysts in a Reuters poll had forecast a drop of 418,000 barrels.

More bearish was a 5.1 million-barrel rise in gasoline stocks, compared with forecasts for a 1.2 million-barrel gain.

“Stubbornly high U.S. crude inventories have seen oil prices ease in Asia today,” said Jeffrey Halley, senior market analyst at OANDA. But “dips … are likely to be limited for now, as the U.S. holiday mutes activity,” he added.

Oil prices had risen this week on expectations that China and the United States, the world’s two biggest crude users, would soon sign a preliminary agreement, putting an end to their 16-month trade dispute.

Forces based in eastern Libya said on Wednesday they had driven rival factions from the 70,000-bpd El Feel oilfield after attacking the area with air strikes, leading to production being halted and raising some worries about supply.

In the United States, energy services company Baker Hughes reported that U.S. oil drillers reduced the number of drilling rigs for a record 12 months in a row.

Drillers cut three oil rigs in the week to Nov. 27, bringing the count down to 668, lowest since April 2017, Baker Hughes said in its report released a day early due to the U.S. Thanksgiving holiday.

Oil gains as Middle East Gulf tensions flare, Libya oil field shut

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KEY POINTS
  • Brent crude futures climbed 85 cents, or 1.4%, at $63.32 a barrel by 0404 GMT. The international benchmark rose by $1 earlier.
  • West Texas Intermediate (WTI) crude futures were up 47 cents, or 0.8%, at $56.10 a barrel.
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An Iraqi worker gauges gas emissions from an oil pipe at the Daura oil refiner
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Oil prices rose on Monday on concerns that Iran’s seizure of a British tanker last week may lead to supply disruptions in the Middle East and after Libyareported the shut down of its largest oil field.

Brent crude futures climbed 85 cents, or 1.4%, at $63.32 a barrel by 0404 GMT. The international benchmark rose by $1 earlier.

West Texas Intermediate (WTI) crude futures were up 47 cents, or 0.8%, at $56.10 a barrel.

WTI fell over 7% and Brent fell more than 6% last week.

“Falling global demand and rising U.S. stockpiles have helped turn oil charts very bearish, but that may not last as tensions remain high in the Persian Gulf,” Edward Moya, senior market analyst at OANDA in New York, said in a note.

Iran’s Revolutionary Guards said on Friday they had captured a British-flagged oil tanker in the Gulf in response to Britain’s seizure of an Iranian tanker earlier this month.

The move has increased the fear of potential supply disruptions in the Strait of Hormuz at the mouth of Gulf, through which flows about one-fifth of the world’s oil supplies.

Britain was weighing its next moves on Sunday, with few good options apparent as a recording emerged showing that the Iranian military defied a British warship when it boarded and seized the ship.

A senior United States administration official said on Friday the U.S. will destroy any Iranian drones that fly too close to its ships.

A day earlier, the U.S. said one of its navy ships had “destroyed” an Iranian drone in the Strait of Hormuz after the aircraft threatened the vessel, but Iran said it had no information about losing a drone.

Crude oil supply outages and curbs also helped lift prices higher.

“Oil prices got a small boost this morning after Libya’s (NOC) declared force majeure on Sharara crude loaded at Zawiya port,” said Stephen Innes, managing partner at Vanguard Markets.

Libya’s National Oil Corporation (NOC) declared a force majeure on Saturday at the country’s largest oilfield, El Sharara, after it was shut down the previous day causing a production loss of about 290,000 barrels per day (bpd).

Meanwhile, data late last week showed shipments of crude oil from Saudi Arabia, the world’s top oil exporter, fell to a 1-1/2 year low in May.

U.S. energy firms reduced the number of oil rigs operating for a third week in a row as drillers follow through on plans to cut spending amid a global supply glut. The United States is now the world’s largest oil producer.

Speculative money is flowing back into the oil markets in response to the escalating dispute between Iran and the United States and other western nations playing out in the Gulf waters along with the signs of falling supply.

Hedge funds and other money managers raised their combined futures and option’s positions on U.S. crude for a second week and increased their positions in Brent crude as well, according to data from the U.S. Commodity Futures Trading Commission and the Intercontinental Exchange.