Crude oil futures fall on prospects of increased Libyan production

Singapore — 0155 GMT: Crude oil futures fell during the mid-morning trade in Asia on Oct. 26, extending losses from Oct. 23, after Libya's National Oil Corp said that output from the country may increase to 1 million b/d within four weeks.

At 9:55 am Singapore time (0155 GMT), ICE Brent December crude futures were down 70 cents/b (1.68%) from the Oct. 23 settle to $41.07/b, while the NYMEX December light sweet crude contract was down 69 cents/b (1.73%) at $39.16/b. Both markers had fallen 1.63% and 1.94%, respectively, to settle at $41.77/b and $39.85/b, respectively, on Oct. 23.

The fall in oil prices comes amid heightened concerns on the supply side, after Libya's NOC lifted the force majeure on exports from the country's largest ports, Es Sider and Ras Lanuf on Oct. 23, and said that output from the country would reach 800,000 b/d within two weeks and 1 million b/d within four weeks.

The return of these additional barrels from Libya may be permanent, as it is the direct result of the country's two warring factions -- the Government of National Accord and the Libyan National Army -- signing a ceasefire effective in all areas of Libya on Oct. 23, and thereby ending the conflict that had wreaked havoc on the country's oil sector, S&P Global Platts reported on Oct. 23.

Prior to the ceasefire, Libya had been producing 500,000 b/d of oil, with analysts expecting output to rise to not beyond 700,000 b/d by the end of 2020.

The increase in Libyan oil production could further complicate the OPEC+ alliance's efforts to balance a market plagued by tepid demand amid the current economic gloom, especially since the alliance is scheduled to relax its production cuts by almost 2 million b/d from 2021 onwards.

ANZ analysts said in an Oct. 26 note: "The supply cuts that the [OPEC+ alliance] implemented in Q2 have gone a huge way to stabilizing the market ... if market conditions worsen, they will have no choice but to delay the increase of quotas by a month or two at [their] meeting on 1 December."

Meanwhile, demand-side concerns also continued to weigh down on the market, as countries in Europe continued to grapple with the surge in coronavirus cases by tightening restrictions, and as the US stimulus package, widely expected to expedite US economic recovery and shore up oil demand, remained in limbo.

"The matter with the fiscal stimulus continues to appear to be going nowhere even as House Speaker Nancy Pelosi suggested over the weekend that a [package] could be passed this week ahead of the US election," Jing Yi Pan, senior market strategist at IG, said in an Oct. 26 note.