By Adedapo Adesanya
Oil prices slid more than 3 per cent on Monday over fears of increased global supply following news that Libya will resume oil production since January after oil export terminals and oilfields were blocked due to conflict.
Brent crude fell $1.36 or 3.15 per cent to $41.79 per barrel while the United States West Texas Intermediate (WTI) crude shed 3.48 per cent or $1.43 to close at $39.68 barrel.
Libya’s National Oil Corporation will restart production from certain fields and some exports of crude oil, the company said, adding that it will only restart production at safe fields and exports from safe ports.
The resumption of Libyan oil flowing to the global market at a time of weak demand recovery and weak oil prices was not a piece of news welcomed by market participants with open arms.
It has the possibility to bring back 1.2 million barrels per day to the market from just about 100,000 barrels it is currently. The scale-down happened in January when General Khalifa Haftar’s Libyan National Army (LNA) occupied the African producer’s oilfields, effectively blocking the North African country’s black gold.
But now that Libya will start bringing production back on, things may well change as the agreement by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) relied on the country’s involuntary contribution to the overall supply curbs.
Analysts noted that there will be a gradual ramp-up of Libyan supply starting from the end of the month to 650,000 barrels a day in early 2021, a level below pre-crisis levels of 1.2 million barrels a day, based on earlier reports of damaged infrastructure.
This means Libya is set to add 230,000 barrels a day on average over the fourth quarter of 2020, with the possibility of ramping up production above this as they will be spared from the OPEC+ cuts.
Also, depressing prices on Monday were reports of rising coronavirus cases in Europe, which means already affected demand will be further impacted by the possible renewal of restrictions on activities on the continent.
Also, in the United States, Tropical Storm Beta is forecast to move toward the central coast of an oil state, Texas. Natural disasters normally prop up prices but the Gulf of Mexico region is still recovering from back-to-back hurricanes, following Hurricane Laura in late August and Hurricane Sally last week. As of Monday, more than 10 per cent of the region’s oil production remained shut-in.
