Oil Prices Crash As Libya Resumes Production

Andrew Cummings
July 14, 2018

Last month, the United States said it wanted to reduce oil exports of fifth-biggest producer Iran to zero by November.

Due to higher US oil production, however, higher prices are not necessarily a net loss for the USA economy. "Renewed geopolitical supply-side disruptions stemming from Canada, Iran, Libya, Venezuela and the United States raise the likelihood of oil trade interruptions and, with it, upside risks to oil prices in the near term".

Hedge funds and other money managers raised their net long position in the six most important petroleum futures and options contracts by 47 million barrels.

Libya's national oil production fell to 527,000 barrels per day (bpd) from a high of 1.28-million bpd in February following recent oil port closures, National Oil said on Monday.

The announcement by Libya's National Oil Corp that four export terminals were being reopened, ending a standoff that had shut down most of Libya's oil output, was one of the catalysts for a correction, analysts said. This was the biggest price slide in almost two years.

Moving forward, we have to consider several factors. Still, oil prices remained down for the session as investors anxious over the Trump administration's list of $200 billion in Chinese goods that could face 10% tariffs once public consultations end in August.

OPEC on Wednesday forecast world demand for its crude will decline next year as growth in consumption slows and rivals pump more, pointing to a market surplus returning despite an OPEC-led pact to restrain supplies.

Secondly, the recent rally was being supported partly from a drop in Libyan output.

In addition, overall crude imports declined on the week, falling to 7.4 million barrels per day, off by 1.3 million bpd from the week-earlier period. If Libyan production can get back to its high then this will take care of some of the spare capacity concerns.

Prospects of US sanctions on crude exports from Iran, the world's fifth-biggest oil producer, has helped push oil prices up in recent weeks, with both crude contracts trading near 3-1/2-year highs until Wednesday. Additionally, at some time in the near future, the Canadian pipeline problem will be fixed and the supply disruption over.

"In spite of the extraordinary draw in crude oil inventories, the market is under pressure after refiners produced a record amount of gasoline this week and in conjunction with a greater than expected build in distillate inventories", said Andrew Lipow, president at Lipow Oil Associates in Houston.

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