Oil prices fall as demand concerns offset Middle East supply fears

Libya’s National Oil Corporation has declared force majeure at the Sharara oilfield after it was shut down by protesters

The oil refinery in Zawiya, Libya. Reuters

Oil futures fell on Monday as crude demand concerns outweighed Middle East supply fears.

Brent, the benchmark for two thirds of the world’s oil, was trading 2.60 per cent lower at $76.71 a barrel at 3.59pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 2.83 per cent at $71.72 a barrel.

The decline comes after crude prices gained last week amid mounting tension in the Middle East and disruption in production in Opec member Libya.

“Oil prices capped a choppy week with gains on Friday helping to give both Brent and WTI a positive start to the year,” said Edward Bell, head of market economics at Emirates NBD.

“Geopolitical anxiety over security of supply as well as disruptions to Libya’s supply are weighing against softening demand conditions,” Mr Bell said.

On Sunday, Libya’s National Oil Corporation declared force majeure at the Sharara oilfield, the country’s largest, after its shutdown by protesters.

The closure has resulted in the suspension of crude oil supplies from the field to the Zawiya terminal, the NOC said.

The oilfield in southern Libya can produce up to 300,000 barrels per day, representing about a fourth of the country’s output of 1.2 million bpd.

“Negotiations are ongoing to resume production as soon as possible,” the NOC said.

US Secretary of State Antony Blinken, who is in the Middle East this week, warned that the Israel-Gaza war could “easily” spill over into a full-blown regional conflict.

“This is a moment of profound tension in the region,” Mr Blinken said in Qatar on Sunday.

Oil last year recorded its first yearly decrease since 2020, mainly due to increased supply from sources outside the Opec alliance and worries regarding a potential slowdown in demand growth in 2024, particularly in China, the world’s second-largest economy and top crude importer.

Saudi Aramco, the world’s largest oil-exporting company, cut the February price of its flagship Arab Light crude by a more-then-expected $2 per barrel to Asian customers, Reuters reported.

It is now at a level last seen in November 2021.

Arab Light, a high-sulphur crude oil, is the major export grade for Saudi Arabia and any price cuts could indicate lower demand or easing supply tightness in the market.

The greater-than-expected price cuts highlight demand concerns again, putting the focus back on Opec+ supply curbs, Saxo Bank strategists said.

Last month, Opec+ members announced voluntary production cuts of 2.2 million barrels per day for the first quarter of 2024, led by Saudi Arabia rolling over its voluntary reduction of 1 million bpd.