Oil prices fall on surging US inventories, civil unrest in Libya

Oil sector’s first quarter 2019 contraction points
Brent crude, the benchmark for Nigeria’s crude oil, fell on Thursday pressured as Organisation Petroleum Exporting Countries (OPEC)-led cuts, increase in US crude inventories and political turmoil in Libya tighten global supplies.
International benchmark, Brent, futures were at $71.44 per barrel, down 29 cents or 0.4 percent from their last close while US West Texas Intermediate (WTI) crude oil futures were at $64.28 per barrel, down 33 cents or 0.5 percent from their previous settlement.
“The situation will be for a short term. If any of the major factors changes, prices will change again,” Ayodele Oni, partner, Energy Practice Group, Bloomfield Law Practice, told BusinessDay.
OPEC, which has agreed with allies to withhold 1.2 million bpd of crude from the market since the start of 2019, fell 550,000bpd in March to 30.1 million bpd, the IEA said. OPEC’s official report on Wednesday put the group’s output at a four-year just over 30 million bpd.
The agency, which coordinates the energy policies of developed nations, saw oil stocks in industrialised countries fall in February by 21.7 million barrels, putting inventories 16 million barrels above their five-year average.
According to Wunmi Iladare, Ghana National Petroleum professor and chair, University of Cape Coast, Institute of Oil and Gas, “Oil production has not come down neither has the economic growth picked up where oil and gas are consumed. So I am not going to really put much weigh on the current dynamic beyond, the geo-politics of oil and gas suppliers.”
US crude inventories rose seven million barrels to 456.6 million barrels in the last week, their highest since November 2017, the Energy Information Administration said on Wednesday.
US crude oil production remained at a record 12.2 million barrels per day (bpd), making the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.
There are also concerns that an economic slowdown will soon dent fuel consumption after the International Monetary Fund this week downgraded its global growth forecast to the lowest in a decade.
Despite the surge in US supply and the economic concerns, global oil markets remain tight amid supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), US sanctions on oil exporters Iran and Venezuela, and escalating fighting in Libya.
“Oil markets will remain tight as long as Saudi Arabia continues to back the production cut deal as aggressively as it has done so far,” Ole Hansen, head of commodity strategy at Saxo Bank told Reuters.
Beyond the short-term outlook for oil markets, a lot of attention is on the future of demand amid the rise of alternative fuels for transport.
“Pressure to global supplies continues to mount because of sanctions-linked problems in Iran and Venezuela and rising geopolitical risk in Libya,” said Stephen Innes, head of trading at SPI Asset Management told Reuters.
Also, in another news that could affect oil prices, Eastern-based Libyan forces commanded by Khalifa Haftar launched an offensive last week to take control of Tripoli, the capital, plunging the OPEC country into a new round of armed conflict.
Haftar’s Libyan National Army (LNA) faces fierce resistance from rival military groups, as a major supplier of oil and gas to Europe and starting point for migrant flows into Italy, much is at stake if the country slips into further turmoil.
The OPEC member state has been riven by conflict since the fall of dictator Muammar Qaddafi in 2011 after Gaddafi ruled Libya with an iron fist for 42 years, keeping control over its various tribes and clans.
For much of that time, General Khalifa Haftar has held the country’s east, drawing support from Egypt and the United Arab Emirates and serving as a foil to the United Nations-recognized government in the capital of Tripoli.
The two sides have been engaged in UN-sponsored power-sharing talks. But on Wednesday, Haftar’s Libyan National Army unexpectedly advanced towards Tripoli. Skirmishes between the LNA and forces loyal to Prime Minister Fayez al-Serraj have since been reported, including in the city of Gharyan south of Tripoli.
Once, Africa’s third-largest producer with output of 1.6 million barrels per day (bpd) before the revolution, Libya’s oil output slumped to just 150,000 bpd in May 2014.
Current output is around 1.1 million bpd, according to Reuters estimates.

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