Oil disruptions in Libya fail to rattle markets as global inventories weigh down oil prices
When the Riyadh-based International Energy Forum convened to sign its charter on February 22, 2011, the Libyan civil war was in full swing. Markets were in panic mode, with oil prices once again surpassing the three-digit mark. There was widespread concern within the energy sector, with some predicting that if OPEC didn’t increase production, prices could exceed the US$147 per barrel peak reached on July 11, 2008.
I recall Abdallah Salem el-Badri, then Secretary General of the Organization of Petroleum Exporting Countries (OPEC) and a Libyan national, visibly distressed by the events unfolding in his country and the safety of his loved ones back home.
Today, Libya’s situation is not much different from 2011. Civil war has once again erupted, significantly reducing the country’s oil output. The Libyan National Oil Corporation reports that recent oilfield closures have slashed about 63 percent of the nation’s total oil production due to ongoing conflict between rival eastern and western factions. Richard Bronze, head of geopolitics at Energy Aspects, estimates that over 60 percent of Libya’s oil capacity – around 750,000 barrels per day – has already been shut down, with this figure likely to rise. Rapidan Energy Group, a consulting firm, warns that production losses in Libya could reach between 900,000 and one million barrels per day.
Yet, despite the turmoil in Libya and other regions, including the escalating Israel-Hamas conflict, markets are not reacting as they did in 2011. The ongoing geopolitical crises in the region have not significantly disturbed the markets.
Last Friday, oil prices fell once again. Brent crude futures for October delivery, which expired that day, settled US$1.14 lower, or 1.43 percent, at US$78.80 per barrel, marking a weekly decline of 0.3 percent and a 2.4 percent drop for the month. U.S. West Texas Intermediate (WTI) crude futures dropped by US$2.36, or 3.11 percent, to US$73.55, reflecting a weekly decrease of 1.7 percent and a 3.6 percent decline in August.
This price decline also meant that gas prices at stations across the country remained low. While driving through Mississauga and Burlington in Ontario, I was pleased to see prices as low as US$1.379 per litre.
“It’s interesting to see Libya’s oil production shutdown impact market prices one day and be completely ignored the next,” said Tim Snyder, chief economist at Matador Economics. “It seems to me there’s a lot of negative momentum in the market driving prices down,” Snyder added.
Markets seem convinced that fundamentals are weak, and for several clear reasons.
According to a recent Reuters poll in late August, weaker-than-expected Chinese oil demand and high global inventories have led economists and analysts to lower their oil price forecasts for 2024 for the fourth consecutive month. Experts in the monthly Reuters poll now expect Brent crude prices to average US$82.86 per barrel this year, down from US$83.66 in July’s forecast.
Similarly, the U.S. benchmark, WTI crude, is now projected to average US$78.82 per barrel in 2024, down from US$79.22 expected in last month’s poll.
Last week, Goldman Sachs Group Inc. and Morgan Stanley also reduced their oil price forecasts. Goldman Sachs now projects Brent crude to trade between US$70 and US$85 per barrel in 2025, with an average price of US$77. Morgan Stanley, which had anticipated Brent prices to stay in the mid-80s throughout the third quarter of 2024, has cut its fourth-quarter forecast to US$80 per barrel, down from US$85, and now expects prices to gradually decline to US$75 per barrel by the end of 2025, slightly lower than their previous estimate of US$76.
China’s CNOOC Ltd. predicts that oil prices will remain between US$75 and US$85 per barrel for the second half of 2024, consistent with current market trends.
One thing seems clear: this is not 2011, when the onset of civil war in Libya sent oil prices soaring into three-digit territory. We are living in different times and a different ‘crude’ era.
Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.
For interview requests, click here.
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