Business News
Oil markets look to potential disruption with halt in Libyan production
Abu Dhabi: Oil prices could see prices going up in the short term with a disruption in supply after oil production in Libya was down by 800,000 barrels on Friday, analysts said.
Oil markets on Friday saw Brent trading on $64.85 and West Texas Intermediate (WTI) at $58.54, both down on the week with continued oversupply concerns and weak economic data coming out from China.
Geopolitical tensions, however, may take centre stage again this week after oil exports were blocked from ports in Libya along with oil field closures. International peace talks are set to take place in Berlin, Germany, on Sunday in an attempt to reach a settlement between conflicting Libyan factions.
“While the Gulf region has dominated geopolitics to start the year, North Africa will set the tone this week. Reportedly half of Libya’s oil production has been shut in as political rivals seek to exert influence over pending negotiations to end hostilities,” said Edward Bell, commodity analyst at Emirates NBD.
“The country continues to endure political unrest that threatens the stability of supplies and exports. Hence, we assign a relatively low probability to Libya maintaining recent high production levels for most of 2020,” he added.
While the Gulf region has dominated geopolitics to start the year, North Africa will set the tone this week. Reportedly half of Libya’s oil production has been shut in as political rivals seek to exert influence over pending negotiations to end hostilities.
“Unlike the circumstances in the Gulf, the tensions in Libya are actually affecting physical markets thus allowing a price rally to have more solid footing,” he said.
Market surplus
On a more long-term look, Bell said that market oversupply remained a pressing challenge for markets even with geopolitical tensions, with monthly reports last week by Opec and the International Energy Agency (IEA) forecasting a surplus of oil.
“Fundamentals forecasts from the IEA and Opec highlighted a large gain for non-OPEC suppliers this year—the IEA expecting 2.1 million barrels per day of supply growth—and limited room for Opec producers to increase production at any point this year.
“Both agencies looked through the recent escalation in geopolitical tension although the IEA has noted that Iraq’s production growth trajectory could be at risk from a prolonged period of hostilities.
“Nevertheless, demand and non-Opec supply forecasts from both agencies imply a strong build in inventories in H1 (first half of the year) 2020, capping any upward moves in prices,” he added.
Ole Hanson, head of commodity strategy at Saxo Bank, said Brent would likely find continued support in the low to high $60 price range.
“The short-term outlook points to rangebound trading between $63/barrel and $68/barrel, barring any renewed threat to supplies from the Middle East and especially Libya.
“While Opec raised non-Opec production in 2020 to 2.35 million barrels/day, the IEA kept it unchanged at 2.1. Global demand growth is expected by both to be around 1.2 million barrels which will continue to leave the market oversupplied, especially during the first half of 2020,” Hanson said.