OIL FUTURES: Crude prices fall as volumes return from US Gulf, Libya, Norway

Houston — Crude oil prices plunged Oct. 12, with more volumes rapidly returning to the US Gulf of Mexico after Hurricane Delta, the restart of production in Libya's largest oilfield, and resolution of a worker strike in Norway that threatened to remove 1 million b/d from markets.

The confluence of geopolitical and weather events combined to push front-month NYMEX WTI back below $40/b and to further weaken the prices of refined products. About 400,000 b/d of crude came back online in the US Gulf just from Oct. 11 to Oct. 12, the US Bureau of Safety and Environmental Enforcement reported.

NYMEX November WTI fell $1.17 to settle at $39.43/b, and ICE December Brent slid $1.13 to $41.72/b.

"A new week, and now crude markets are completely focused on both how fast US production will return following Hurricane Delta and as Libya's largest crude field could be near capacity in 10 days," said Edward Moya, senior market analyst for OANDA.

With the ongoing rise of coronavirus cases throughout much of the world, reports indicated that Saudi Arabia is considering reducing or undoing planned OPEC+ output hikes by the end of the year. Moya said, however, that Libya's output could render any other OPEC+ move relatively moot.

With a new agreement between the Libyan central government and the opposing Libyan National Army, production at the Sharara oilfield has resumed and is expected to ramp back up to nearly 350,000 b/d in coming days.

But even larger volumes return to the US Gulf, where Delta triggered shut-ins of more than 90% of crude volumes — the largest disruption yet in a record-setting 2020 storm season. The roughly 1.7 million b/d taken offline began to return during the weekend and will continue to rise throughout the week. BSEE reported 1.28 million b/d remained offline Oct. 12, meaning 69.4% of Gulf oil was still out of commission.

Likewise, the resolution of the short-lived oil workers strike in Norway is bearish on prices. The anticipated oil outage was expected to rise to almost 1 million b/d this week if a deal wasn't reached. For instance, state-controlled Equinor had said it would lack the staff to safely operate its flagship Johan Sverdrup oil field, which achieved output levels of nearly 380,000 b/d in July.

And, back in the US, with the Senate beginning contentious hearing talks Oct. 12 for the latest Supreme Court nomination, there is little optimism that any deal will be struck on new coronavirus stimulus that could boost oil demand prior to the Nov. 3 presidential election.

As for products, NYMEX November RBOB dropped 2.75 cents to settle at $1.1757/gal, while November ULSD fell 3.62 cents to $1.1571/gal.

Longer view

While NYMEX WTI fell back below the $40/b threshold, energy analysts noted that crude prices have remained relatively stable since the beginning of June.

In fact, since June 1, front-month NYMEX WTI has remained in a range of $35/b to $44/b, which isn't a level that would promote many new investments in drilling or activity.

The latest ups and downs are just based on short-lived market events that quickly fade away once the supply disruptions are out of the way, said Bjornar Tonhaugen, head of oil markets for Rystad Energy.

The ongoing coronavirus pandemic will remain the primary driver of crude until the crisis is over. "What really keeps price levels where they are now is the globally low demand and how much extra oil is stored in storage, waiting to be cleared once this crisis is over," Tonhaugen said. "Until we have major developments on these fronts, prices are expected around the $40[/b] mark."

"Unless, of course, we see another historical supply intervention by OPEC+, which, on its own, has saved the market from a price collapse this year," Tonhaugen added.