Oil prices weaken as Libya restarts output from its biggest field

oil and gas - October 13, 2020

Oil prices remained flat during the opening session on Monday as markets braced for the return of Libyan crude.

The North African state’s biggest field El Sharara resumed production after a nearly 10-month force majeure due to political infighting in the country, which halted exports.

The possible return of Libyan barrels to the markets comes at a time when Opec+, the producer alliance led by Saudi Arabia and Russia, has been gradually increasing output.

The group, which undertook a historic correction in output earlier this year, is currently cutting back 7.7 million barrels per day.

Libya, which has so far been exempt from the pact, along with Iran and Venezuela, could possibly derail efforts by the group to drain the glut from the markets.

Brent, the international oil benchmark, was down 2.66 per cent trading at $41.71 per barrel at 6.15pm UAE time. West Texas Intermediate, the key gauge for US crude, was down 3.03 per cent trading at $39.37 per barrel.

'Benchmark crude futures pared some of their late-week gains by Friday settlement, with early trading on Monday seeing further weakening so far,' JBC Energy said in a note on Monday.

'Strikes in Norway have come to a conclusion after having threatened significant cuts to the country’s oil and gas supply, while Libya’s NOC lifted the force majeure from the Sharara oilfield on Sunday.'

The strike in Norway, which shut significant offshore production, accounting for nearly a quarter of the country’s output has now been resolved after the workers settled for a wage agreement.

Production from the Nordic state also adds significant downward pressure on prices.

Markets are also factoring in the return of Iranian barrels as the possibility of a win by US Democratic presidential candidate Joe Biden seems more likely, with elections only a couple of weeks away.

A win by Mr Biden is likely to improve prospects for the lifting of sanctions against Iran, according to some analysts. The Joint Comprehensive Plan of Action was spearheaded by the Barack Obama administration under which Mr Biden served as vice president.

“There is also an idea Biden would bring the Iran nuclear deal back into operation. That would lift sanctions on the country and allow Iran to export its oil to many more countries, which would no longer face the wrath of the US,” said Jasper Lawler, head of research at London Capital Group.

'A sudden dearth of Iranian supply is bearish for the oil price under Biden. Especially in the context of tepid demand during the pandemic,” he added.

Oil demand remains weak, hurt by mobility restrictions enforced across the world during the first half of the year. Meanwhile, a second wave of Covid-19 infections is threatening reviving demand, as major centres such as the US and India register high daily infection counts and death tolls. The global infection rate topped 37.8 million as of Monday, according to Worldometers, which tracks the pandemic. Over a million people have succumbed to the novel coronavirus so far. The number of infections in the US is inching close to 8 million, with India not far off at 7.1 million.

In its latest world oil outlook, Opec estimates that global demand for crude will rebound higher than pre-Covid-19 levels to reach 103.7m bpd by 2025.

Ed Bell, senior director, market economics at Emirates NBD, remained optimistic about an oil market recovery as soon as 2021.

“We see a recovery that's happening in demand certainly from the absolute troughs that we saw across the second quarter of 2020 across many economies and the supply adjustments that we've seen taken by Opec+,” he told a conference by S&P Platts.

The Dubai-based lender expects Brent to trade at $50 per barrel in 2021 but expects the international benchmark to average $40-$50 for “quite some time”.

thenational



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