Oil prices weaken as Libya restarts output from its biggest field
Markets are also factoring in the return of Iranian barrels if Joe Biden, the Democratic candidate, becomes the next US President
Oil prices remained flat during the opening session on Monday as markets braced for the return of Libyan crude.
The North African country’s biggest oilfield, El Sharara, resumed production after a force majeure of about 10 months that halted exports amid political clashes in the country.
The possible return of Libyan barrels 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, and Iran and Venezuela could possibly derail efforts by the group to drain the excess supply from the market.
Brent, the international oil benchmark, fell by 3.08 per cent to trade at $41.53 per barrel at 8.55pm UAE time.
West Texas Intermediate, the key gauge for US crude, was down 3.33 per cent at $39.25 per barrel.
“Benchmark crude futures pared some of their late-week gains by Friday settlement, with early trading on Monday [registering] further weakening so far,” JBC Energy said in a note yesterday.
“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 [National Oil Corporation] lifted the force majeure from the Sharara oilfield on Sunday.”
The strike in Norway, which affected about a quarter of the country’s oil output, was resolved after an agreement with workers was reached.
Production from the Nordic state is also set to mount significant downward pressure on prices.
Markets are also factoring in the return of Iranian crude as the chances of US Democratic candidate Joe Biden winning the presidential election, which is a few weeks away, increase.
A win by Mr Biden is expected to improve prospects for the lifting of sanctions against Iran, according to some analysts.
Mr Biden was vice president in the Obama administration which spearheaded the Iran nuclear deal, known as the Joint Comprehensive Plan of Action.
Jasper Lawler, head of research at the London Capital Group, said there is a chance that Mr Biden would revive the Iran nuclear deal.
“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,” he said.
“A sudden dearth of Iranian supply is bearish for oil prices under Biden, especially in the context of tepid demand during the pandemic.”
Oil demand remains weak, hurt by movement restrictions enforced across the world during the first half of the year.
Meanwhile, a second wave of Covid-19 cases threatens to hit recovering demand as the number of infections and deaths in major energy consuming countries such as the US and India rises.
There were more than 37.9 million infections around the world and more than 1.08 million deaths as of Monday, according to Worldometer.
The number of infections in the US was more than eight million, with India not far off at 7.1 million.
In its latest world oil outlook, Opec forecast that global demand for crude will hit 103.7 million bpd by 2025, exceeding levels reached before the virus began to spread.
Ed Bell, senior director of market economics at Emirates NBD, remained optimistic about an oil market recovery as early as next year.
“We see a recovery that is 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 have seen taken by Opec+,” he told an S&P Platts conference.
The Dubai bank projects that Brent will trade at $50 a barrel next year.
However, Mr Bell expects the benchmark to hover between $40 and $50 for “quite some time”.
Updated: October 13, 2020 01:09 PM