Oil futures fell Monday, with pressure attributed to expectations Libyan crude will soon return to the market, while worries over a rise in European COVID-19 cases and a global equity market selloff added to the negative tone.
West Texas Intermediate crude for October delivery CL.1,
Reports over the weekend that Libyan military commander Khalifa Haftar, who controls the eastern portion of the country, would lift an eight-month blockade on crude exports that have virtually shut down production contributed to the weaker tone, analysts said.
Analysts at JBC Energy, a Vienna-based consulting firm, changed their base case to a gradual ramp up of Libyan supply starting from the end of the month to 650,000 barrels a day in early 2021. “This level is well below precrisis levels of 1.2 million barrels a day, based on earlier reports of damaged infrastructure,” they said in a Monday note. “This means Libya is set to add 230,000 barrels a day on average over Q4 2020, with a certain upside risk given that steeper than anticipated ramp-up patterns may be possible.”
The prospect of returning Libya production is particularly negative amid uncertainty over the state of the global economy as worries rise over a second wave of COVID-19 infections, analysts said.
“Obviously, the global oil market is in a fragile state, given the slower than expected demand recovery, therefore any additional supply is only going to make efforts from OPEC+ to rebalance the market more difficult,” said Warren Patterson, head of commodities strategy at ING, in a note.
A selloff across global equity markets, tied in part to worries over the rise in COVID-19 cases and the potential for the renewal of restrictions on activity in European countries added to the negative tone, analysts said.
European equities tumbled Monday, while U.S. stock-index futures pointed to a sharply lower start for Wall Street.