Crude oil prices edged up earlier today following two days of losses, as concerns about Libya’s oil field shutdown outweighed worries about demand.
On Tuesday, oil production at several Libyan oilfields came to a halt. This followed an announcement on Monday from Libya’s rival eastern government, which declared a stop to all oil production and exports. Libya, which normally produces about 1.2 million barrels per day (bpd), has been facing a deepening political crisis. This crisis began earlier this month due to a dispute over the leadership of the Central Bank of Libya, which manages the country’s oil revenues.
The shutdowns have provided some rare support for oil prices. Despite ongoing concerns about oil demand in China, the market has reacted strongly to the disruption in supply.
Today’s price support was also bolstered by expectations of a possible interest rate cut in the United States next month. However, this positive trend may be unstable and could reverse later in the day due to bearish factors.
On the negative side, the U.S. Energy Information Administration reported a modest decrease in oil inventories yesterday, with a reduction of less than 1 million barrels. This was the second consecutive weekly draw, but it did not significantly impact the market, which remains concerned about oil demand.
ING commodity analysts Warren Patterson and Ewa Manthey noted that Libyan oil output has dropped by nearly 500,000 bpd this week, not including the earlier shutdown of the Sharara oilfield. They suggested that a prolonged shutdown in Libya could give OPEC+ more leeway to increase supply in the fourth quarter of 2024 as currently planned.
The analysts also pointed out that the Libyan outage might complicate OPEC+’s decision on whether to resume some production. They expect the group to avoid increasing output to prevent a potential drop in prices.