Oil prices fall more than 2% as Nigerian output underlines supply worries
London (July 5) Crude-oil prices headed south Tuesday on the prospect of more supply from Nigeria and Libya returning online, which would slow down the pace of a rebalance in a well-supplied market.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in August CLQ6, -2.76% lost $1.34, or 2.7%, to $48.95 a barrel. September Brent crude on London’s ICE Futures exchange LCOU6, -2.42% fell $1.15,or 2.3%, to $47.58 a barrel.
Global oil prices got a boost on Monday after Saudi Arabia’s Energy Minister Khalid al-Falih said oil prices are starting to settle around current levels, as the market is starting to find a new balance between supply and demand.
The upbeat sentiment is echoed by U.S. Energy Secretary Ernest Moniz, who said last week that the markets would be balanced by next year. The downtrend in U.S. domestic crude production has been an integral catalyst in pulling prices out of the 13-year low back in February.
But analysts worry the pace of the rebalance could be hindered as some supply disruptions around the world are showing signs of ending. In Nigeria, despite months of militant attacks on the country’s oil facilities, the country’s output rose last month.
A suicide bomber detonated a device outside the mosque where the Prophet Muhammad is buried in Medina, Saudi Arabia, on Monday, just two days before Eid al-Fitr.
In Libya, rival oil companies have finalized a deal to merge, a development that removed a key obstacle to the unification of a conflict-torn country. The merger could mean reopening of ports in the east and fields in the Sahara.
“This could see Libya’s output double to 700,000 barrels a day if the agreement progresses smoothly,” said Stuart Ive, a client manager at OM Financial.
Moreover, uncertainty in the global economy could suppress oil demand from growing as fast as previously expected, analysts say.
“The deterioration in the global economic outlook, financial market uncertainty and ripple effects on key areas of oil demand growth are likely to exacerbate already-lackluster industrial demand growth trends,” Barclays said in a note.
The bank also expressed concerns that oil might face a delayed headwind in a few months after U.K.’s decision to leave the European Union.
“The prices of most commodities continued to climb sharply for several months following the collapse of Bear Stearns in March 2008,” the bank said. “Oil did not peak until June of that year, and it was not until six months later and the bankruptcy of Lehman Brothers that commodities turned decisively lower.”
This week, investors will be eyeing the weekly U.S. crude inventory data for cues. The data will be released on Thursday this week, instead of Wednesday, due to the Monday public holiday. U.S. non-farm payroll data, a key indication of U.S. job market, will be released on Friday.
Nymex reformulated gasoline blendstock for August — the benchmark gasoline contract — fell 245 points to $1.4890 a gallon.
Source: MarketWatch
