Oil declines on signs of Libya restart with virus cases growing

Oil declined as Libya signaled the resumption of some crude exports, while surging coronavirus cases clouded the outlook for demand and weighed on risky assets.

Futures in New York fell 2.4 per cent toward $40 a barrel. Libya is moving closer to reopening its battered oil industry after it told companies to resume production at some fields that are free of foreign mercenaries and fighters. This will add to already rising supply from OPEC+ nations, and comes as virus infections are starting to increase again in many places around the world.

The U.K. said it’s close to a “tipping point” with the public health crisis, while there were predictions of at least one more virus cycle in America. That contributed to European equities falling by the most since July, while U.S. stock futures also dropped.

U.S. benchmark crude prices jumped 10 per cent last week after a show of determination by Saudi Arabia, the most influential Organization of Petroleum Exporting Countries member, to defend the market. The Saudis hinted they’re prepared for new output cuts, and lambasted OPEC+ nations that have cheated on quotas. But demand and supply worries have returned for investors at the start of this week.

“Between tough talk from Saudi Arabia and the possible resumption of Libyan oil production, the oil market is facing a fork in the road this week,” said Harry Tchilinguirian, an oil strategist at BNP Paribas SA. “Which option it chooses to travel will largely depend on how much real progress will come about in Libya.”

Prices

  • West Texas Intermediate for October fell 97 cents to $40.14 a barrel as of 8:34 a.m. in New York
  • Brent for November dropped $1.01, or 2.3 per cent, to $42.14

Libya’s National Oil Corp. is ending force majeure -- a legal status protecting a party that can’t fulfill a contract for reasons beyond its control –  at “secure” facilities in the conflict-ridden nation and has told companies to resume production. The country’s overall oil production is set to reach 310,000 barrels a day in a few days from the current 90,000 a day, according to a person with direct knowledge of the situation.

Output will probably increase to 550,000 barrels a day by the end of 2020 and to almost one million by the middle of next year, according to forecasts from Goldman Sachs Group Inc. Production, which was 1.1 million at the end of last year, slumped after Khalifa Haftar, a Russian-backed commander who controls eastern Libya, blockaded energy infrastructure.

© 2020 Bloomberg L.P.