Oil Rallies as Storm Disrupts Output in Libya
The crude oil market rallies following supply disruptions in Libya, output cuts from Saudi Arabia and Russia, and positive expectations over the trajectory of the global economy. International benchmark crude Brent traded at $92.29 per barrel, a 0.25% gain from the closing price of $92.06 a barrel in the previous trading session on Tuesday.
The EIA released its latest Short-Term Energy Outlook yesterday in which they slightly revised higher their US crude oil production estimates.
The EIA expects US output to grow by around 880Mbbls/d year on year to a record 12.78MMbbls/d this year, while for 2024, supply is expected to grow by a more modest 370Mbbls/d to 13.16MMbbls/d.
However, given the slowdown observed in drilling activity for much of this year, commodities strategists at ING said it might be a challenge to hit these estimates.
Overnight, the API released US inventory numbers, which were more bearish. US crude oil inventories increased by 1.17MMbbls over the week, whilst gasoline and distillate stocks increased by 4.2MMbbls and 2.59MMbbls respectively.
The American benchmark West Texas Intermediate (WTI) traded at the same time at $89.11 per barrel, up 0.30% from the previous session’s close of $88.84 per barrel.
Brent oil prices reached a fresh 10-month high of $92.40 a barrel on Tuesday on supply disruptions in Libya. Catastrophic floods after Storm Daniel killed at least 5,300 people and forced Libyan authorities to close four oil ports as a precautionary measure.
Libya, a large producer of light, sweet crude oil, sends around 85% of its exports to Europe. Conflict-related damage has crippled local refineries, forcing many to go offline or operate at significantly reduced capacity. Furthermore, Libya sells a sizable quantity of gas to Europe.
Oil prices have been under tight supply pressure since Saudi Arabia and Russia announced their decisions earlier in September to reduce their supplies by 1 million barrels per day (bpd) and 300,000 bpd, respectively, for the rest of the year, with possible monthly revisions.
The OPEC group, meanwhile, issued its monthly oil market report on Tuesday, when the group stated its demand and supply projections.
According to the report, ongoing global economic growth is forecast to drive oil demand, especially given the recovery in tourism, air travel, and steady driving mobility. Oil demand is expected to grow by 2.4 million bpd year over year in 2023 and 2.2 million bpd in 2024.
The oil market continued its move higher yesterday. ICE Brent rallied by almost 1.6% taking it above US$92/bbl and trading to its highest level since November last year. The catalyst for the move was a bullish monthly report from OPEC.
The group’s numbers suggest that the oil market could see a deficit of more than 3MMbbls/d over the fourth quarter of this year.
These numbers will cause some to question OPEC’s claims that their main objective is to keep the market balanced as their own numbers clearly do not show this, Warren Patterson and Ewa Manthey, commodities strategist at ING said in a note.
However, the actual balance could end up looking very different, given that there is still plenty of uncertainty over demand. In addition, analysts said they have seen Iranian and Venezuelan output edging higher this year and there is the potential for at least Iranian supply to continue rising despite US sanctions.
Higher prices are likely to lead to increased political pressure, particularly given that there are elections in a number of countries next year, including key oil consumers, the US and India.
It may be difficult for the US government to allow further releases from its strategic petroleum reserves (SPR), but analysts said they are likely to see the government taking a pause in refilling the SPR after the large releases seen last year.
In addition to this, the US is likely to be less strict in enforcing sanctions against Iran. Already, in recent months this appears to be the case. #Oil Rallies as Storm Disrupt Output in Libya