Crude Drops 3% as Production Returns in Libya, US, Norway

By Adedapo Adesanya

The oil market opened the week almost 3 per cent down as a string of bearish news about production affected the value of the commodity on Monday, October 12.

Leading the pack of bearish news was the report that Libya’s state-owned National Oil Company (NOC) has lifted the force majeure at Sharara, its largest oil field after a military commander lifted a monthslong blockade.

NOC didn’t disclose the current level of output at Sharara, which has a capacity of around 300,000 barrels a day but there are some reports that the field will initially pump 40,000 barrels of crude a day, reaching its capacity at that rate next week.

That would roughly double Libya’s output and complicate efforts by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, to manage supply in the face of demand curtailed by the COVID-19 pandemic.

Consequently, this information pulled down the price of the Brent crude by 2.54 per cent or $1.09 to $41.76 per barrel and battered the price of the West Texas Intermediate (WTI) crude futures by 1.77 per cent or $2.88 to $39.43 per barrel.

During the trading session yesterday, the Norwegian strike affecting production has ended after oil producers and workers reached a wage deal last Friday. This put an end to a supporting factor that had curtailed output in the North Sea by more than 300,000 barrels a day and had threatened to further weigh on production this week.

Another factor which depressed prices of the crude on Monday was the news that US producers began restoring output after Hurricane Delta. The natural disaster, which inflicted the biggest blow in 15 years to energy production in the US Gulf of Mexico last week, was downgraded to a post-tropical cyclone at the weekend.

However, more disruptions in the Gulf are likely in the coming weeks as the hurricane season continues. This could see prices increase again as workers will be expected to halt production during this time.

On Monday, prices were also pressured by a jump in new COVID-19 cases, which has raised the need for more lockdowns which could dampen demand for oil.

Infections are at record levels in the U.S. Midwest. In Europe, British Prime Minister Boris Johnson announced new coronavirus lockdown measures and Italy is preparing fresh nationwide restrictions.