Oil Prices Decline Nearly 5%

By Arathy Somasekhar

(Reuters) – Oil prices settled nearly 5% down on Tuesday at their lowest levels in nearly nine months due to signs of a resolution to the dispute halting Libyan crude production and exports.

Brent crude futures closed down $3.77, or 4.9%, at $73.75 a barrel, marking the lowest level since December 12. West Texas Intermediate (WTI) crude futures, which did not settle on Monday due to the U.S. Labor Day holiday, fell $3.21, or 4.4%, to $70.34 — also their lowest since December.

In the previous week, Brent closed down 0.3%, while WTI settled 1.7% lower.

Libya’s legislative bodies announced an agreement to appoint a new central bank governor within 30 days after U.N.-sponsored talks, according to a statement from the representatives on Tuesday.

As of Monday, the major ports in Libya had halted oil exports, and six engineers reported curtailed production across the country, continuing the standoff between rival factions over central bank control and oil revenue.

Speculation about a potential deal triggered momentum selling, noted Ole Hansen, an analyst at Saxo Bank.

Libya’s National Oil Corp (NOC) declared force majeure on its El Feel oilfield starting September 2. Total production dropped to little over 591,000 barrels per day (bpd) as of August 28, down from almost 959,000 bpd on August 26, according to NOC. Production was approximately 1.28 million bpd on July 20.

Prior to the news regarding Libyan supply potentially returning to the market, prices had already decreased due to concerns of weakening demand from sluggish economic growth in China, the world’s largest crude importer.

“The weaker-than-expected Chinese manufacturing PMI over the weekend likely exacerbated concerns about the Chinese economy’s performance,” stated Charalampos Pissouros, a senior investment analyst at brokerage XM.

China reported on Monday that new export orders experienced their first decline in eight months in July, and the rise in home prices in August was the slowest so far this year.

Hopes that the U.S. driving season would drive prices to new highs in 2024 have not materialized, according to Fawad Razaqzada, a market analyst at Forex. U.S. gasoline futures dropped nearly 6%, reaching their lowest level since December 2021 as the summer driving season concluded, impacting demand for motor fuel.

“The recent data shows no signs of any increase in import demand in China, Europe, or North America suggests the oil market may not be as tight as anticipated a few months ago,” Razaqzada commented.

Some supply is expected to return to the market, as eight members of OPEC and its allies, collectively known as OPEC+, are scheduled to increase output by 180,000 bpd in October. Sources indicate this plan will likely proceed regardless of demand concerns.

Disruptions in supply from the Middle East, following attacks on two oil tankers in the Red Sea off Yemen on Monday, were insufficient to support prices, as the tankers sustained minimal damage.