The big question in oil this week: What is going on in Libya?
With hostilities in the civil war there calming, the state-owned National Oil Corp. signaled that it could start increasing oil production and exports, potentially pumping another 1 million barrels a day into global markets. Secondary sources reporting to the Organization of Petroleum Exporting Countries put Libyan oil production in August at 106,000 barrels per day. Over fourth quarter 2019, output was closer to 1.1 million barrels per day.
Paul Hickin, associate editorial director at Platts in London said Libya is the wild card among major producers, with the potential to upend OPEC’s effort to balance the market. But analysts remain skeptical that Libya will be able to quickly ramp up production and exports, as it faces domestic challenges such as repairing damage to energy infrastructure and global challenges such as weak economic growth and energy demand.
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On the upside, Paul Sullivan, a professor of economics at the National Defense University in Washington, said the possibility that another Arab country will join an emerging anti-Iranian bloc with Israel could add a risk premium, considering potential threats in and around the Persian Gulf. The risk, he said, is that Iran may “try to ratchet things up a teeny bit more.”
When Iranian forces allegedly struck Saudi oil installations last September, the price for Brent crude oil shot up some 14 percent in a single session.
Tamas Varga, an analyst at oil broker PVM in London, told us his focus was on technical matters this week. Crack spreads, the difference between the price of oil and the price of refined products, show demand for gasoline improved, though demand for distillates such as diesel remain depressed. Overall, trading across calendar months shows the crude market is in contango, where the price a few months out is higher than the immediate contract.
Varga said that if the price in contracts in later months begins to rise and narrow the difference with the month-ahead contract, it could be sign that “some kind of tightness is developing in the physical market.”
Daniel J. Graeber is a veteran energy correspondent and founder of The GERM Report, a survey of the intersection between energy and foreign affairs.
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All oil eyes are on Libya’s possible return - Houston Chronicle
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