Libya Turmoil, OPEC Deal Expectation Stirring Limited Rebound in Oil Market

© REUTERS / Ismail ZitounyA general view of the El Sharara oilfield, Libya December 3, 2014
A general view of the El Sharara oilfield, Libya December 3, 2014 - Sputnik International
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Recent disruptions in Libyan oil exports caused by armed insurgent activity, as well as the statement by Venezuelan president, suggesting an oil production freeze to be negotiated by OPEC, lifted oil prices up slightly, with moderate rebound expected by yearend.

Kristian Rouz – Oil prices have spiked in the wake of the most recent escalation in Libya’s internal military standoff, whilst a hint from Venezuela – one of the key OPEC members – provided traders with a renewed hope for the energy cartel’s production cuts.

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Nonetheless, there is still a lot of downside pressure on the global oil trade, including the non-OPEC oil producers increasing output, and a volatile US energy market situation, where the disinvestment in shale oil is a positive for the price, yet, the lingering Keystone issue might be reviewed after the upcoming election, with a subsequent crash in prices.

Oil appreciated by 2pc in Monday’s trading after the Venezuelan authorities said an OPEC deal could limit production. Libya remains a factor, where key Eastern crude terminals have suffered disruptions recently because of the increased rebel violence.

Meanwhile, higher Wall Street stock valuations suggested a boost on the US demand side, yet, the still weak manufacturing and shrinking corporate profits stateside might offset the positive effects. However, as the US dollar has weakened with a September Fed hike the chances fading, and crude oil is positioned for gains through the end of the month.

"My bias remains positive as there appears to be more bullish surprises as of late in a time where the market was pretty convinced that it was going to be the opposite," Scott Shelton of the Durham, NC-based energy products brokerage ICAP, said.

In London, Brent oil gained 2.1pc, or $0.97, to $46.74/bbl, on Monday, whilst the US WTI brand gained $0.95 in futures trading, or 2.2pc, to $43.98/bbl.

US petrol prices, however, retreated, stirring some downward concern on the oil market situation. Petrol fell 0.4pc in futures trading to $1.46 per gallon. The car fuel cheapened because earlier expectations of pipeline disruptions in the southeastern states failed to materialize.

“Gasoline deliveries have all but halted and inventories at local gasoline racks have quickly been depleting as panicked motorists fill their tanks, leading to gas price spikes, supply outages and headaches,” Patrick DeHaan of GasBuddy.com said, referring to the recent situation in six southeastern states, heavily reliant on private vehicles for transportation.

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Nonetheless, Colonial pipeline Co. managed to commission a detour pipeline, with petrol deliveries expected to resume this week, weighing on prices.

The fighting in Libya and Venezuela’s OPEC commentary, therefore, remain this month’s highlights for energy market participant sentiment so far.

Libya’s oil output now stands at 300,000 bpd, far below the nation’s full capacity, and while the oil ports remain under constant security threat from the insurgent groups operating in their near vicinity, Libya’s export potential remains limited, providing support for global oil prices.

“The expectation of a rapid normalization of Libyan oil exports is likely to prove illusory,” Commerzbank said in a note.

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Venezuelan President Nicolas Maduro, meanwhile, said on Sunday that OPEC are close to reaching a deal limiting the cartel’s oil production and exports in order to boost prices to ease the fiscal pressures affecting member economies. The OPEC conference in scheduled for next week in Algeria, meaning a brighter outlook in the oil market is likely to persist till then even in an event no deal is ultimately reached.

Limiting output would be "a win-win for OPEC and Russia, as Iran is unlikely to add extra production anyway for the next six to 12 months," Deshpande Abhishek of Natixis said.

One of the world’s oil majors, BP, expects crude prices to reach $55-60/bbl by yearend, with the massive US crude reserves preventing a greater oil rally to a $100/bbl level.

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