Oil prices fell to their lowest level in eight months on Tuesday, as traders worried about a fundamental imbalance between lackluster demand and potentially rising supply. Brent North Sea crude for November delivery plunged 4.86% to $73.75 a barrel. Its U.S. equivalent, West Texas Intermediate (WTI) for October delivery, fell 4.36% to $70.34 a barrel, barely above the symbolic $70 mark. “When you see a session like that, it’s often linked to a combination of factors”a commenté Andrew Lebow, de Commodity Research Group.
The first, according to him, was to “macroeconomic weakness”illustrated by several Chinese data that testify to a still anemic economic situation in the People’s Republic. An American indicator (the ISM index), which showed on Tuesday that industrial activity had remained in contraction in August, darkened the picture a little more. This lack of drive from the world’s two leading economies is weighing down refined products, which offer such modest margins to refiners that they are encouraged to slow down the pace, which is undermining crude.
U.S. wholesale gasoline prices fell to a 14-month low Tuesday, as did European diesel prices. To make matters worse, the northern hemisphere is ending its summer season, which traditionally marks a slowdown in refining and the start of a period of favorable maintenance. Oil sales also accelerated sharply after the agency Bloomberg “reported an imminent restart of oil production in Libya”says Giovanni Staunovo, an analyst at UBS interviewed by AFP.
Return of the Libyan offer
The UN Support Mission in Libya (UNSMIL) announced that it had held talks on Monday with the country’s two rival executives, whose differences have led to a crisis in the governance of the Central Bank and fears surrounding the oil sector. In the grip of chaos since the fall and death of dictator Muammar Gaddafi in 2011, Libya is governed by two rival executives: that of Abdelhamid Dbeibah based in Tripoli (west) and recognized by the UN, and another in the east, supported by Marshal Khalifa Haftar.
On Monday, Libya’s National Oil Company (NOC) declared the state of “force majeure” for the El-Feel oil field, citing in a press release “circumstances beyond his control”Who “will affect and stop oil operations and crude oil production”. “Libya’s central bank believes that the conflicting parties are close to an agreement and that the resumption of oil production is imminent”explains to AFP Tamas Varga, analyst at PVM Energy.
All eyes on OPEC+
“If oil prices continue to fall, OPEC+ will have to make an important decision”points out Fawad Razaqzada, analyst at City Index. In early June, the Organization of the Petroleum Exporting Countries (OPEC) and its allies in the OPEC+ agreement had announced that they could increase their production as early as October, with the end of additional voluntary cuts by some members.
Several media outlets reported at the end of last week that the scenario was still relevant. Bjarne Schieldrop of Seb points out that the market has become accustomed to a proactive OPEC+ to support prices, but adds that“Today, the market is less sure of its willingness to intervene to catch up with prices in the event of a fall”. “Given the current price level, we can assume that they will review their strategy.”avance Andrew Lebow.
The cartel could also let prices collapse. A choice “painful in the short term” according to Fawad Razaqzada, but which could rule out “competition from American producers of shale oilwhose costs are high”In the medium term, he argues, this would contribute to “stimulate the global economy and contribute to the disinflation process, by encouraging central banks to lower interest rates”which would ultimately boost global demand.
