Analys
Repeated losses of supply in Libya in 2020 seems likely
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Libya’s oil production (1.1 m bl/d in December) is now estimated to have fallen to close to zero as General Haftar has closed ports and pipelines under his control. So far there are no damages to oil installations and production can thus ramp up just as quickly if/when a decision by Hafter is taken to revive it. The big question is how much oil will be lost for how long. The market most clearly expects this to be very short term. That is why the oil price is not moving up more than 0.4% to $65.1/bl at the time of writing.
![Bjarne Schieldrop, Chief analyst commodities at SEB](https://ravarumarknaden.se/wp-content/uploads/bjarne-schieldrop-seb-commodities.png)
General Haftar is in control of the eastern part of Libya and is supported by UAE, Egypt, Russia and France who have supported him with both arms and mercenaries. His goal has all along been to overtake all of Libya. He has pushed hard to conquer Tripoli where the internationally recognized government (backed by the U.N., Turkey and Qatar) is seated. He has been besieging the city now for close to a year without success.
General Haftar refused to sign a ceasefire agreement in Moscow one week ago and has now halted the flow of oil out of Libya in response to the ongoing peace negotiations. We don’t think that he will let go of his power grab ambitions in Libya. We don’t think that Russia will stop supplying him arms and funding. In our view it does not look like the ongoing peace negotiations will be successful. The result will then be further increased military and financial support of the two sides in the conflict with periods of lost supply from Libya a highly likely outcome in the year to come.
It is the National Oil Company (NOC) in Libya, seated in Tripoli, which is handling Libya’s crude oil sales. Libya’s NOC is the internationally recognized body to execute such sales. Haftar has earlier tried to circumvent the NOC but without any success.
It is the Central Bank in Tripoli which handles the income from the oil sales and then distribute it impolitically in Libya both to the east and the west. The halt in Libya’s oil exports is thus halting the financial funding of both General Haftar to in the eastern part of Libya as well as the western part. So, unless Haftar is getting more financial funding from Russia (and Egypt, UAE and France) he will have to revive oil exports again in order to fund himself.
The expert view is that Haftar does not have neither the financial nor the military power to overtake Tripoli (and thus the whole of Libya) and if he did overtake Libya it will likely end in bloodbath and chaos. The only real solution is a diplomatic solution.
The ongoing peace negotiations is an international diplomatic effort to halt the flow of money, arms and soldiers from the international backers of the two sides which is the main driver of the current escalation.
Turkey’s president Erdogan (supporting Tripoli and western Libya) stated last Thursday that he would send troops to Tripoli in order to support the internationally recognized government there until stability has been achieved. General Haftar’s shut-down of Libya’s oil exports this weekend was probably partially a response to this move by Turkey’s Erdogan.
All through 2019 the market experienced a string of serious events in the Persian Gulf and the Middle East with the most serious being the attack on Saudi Arabia’s oil installations (Khurais field and Abqaiq processing facility) in mid-September last year.
The reason why these events did not have more than a fleeting impact on the oil price last year was of course because not much oil was really lost in these events (except Venezuela and Iran). Even the severe attack on Saudi Arabia did not lead to much losses of supply in the market since Saudi could sell oil and products from substantial inventories.
Now we have a real outage. Expected to be short-lived for now. But to us it does not look like diplomacy will be easily achieved. Thus, periods of significant losses of supply in Libya seems likely in the year to come. This will lend support to oil prices which to start with are under pressure from strong non-OPEC production growth, high inventories and lukewarm oil demand growth.
Ch1: Libya’s crude oil production. Lately at 1.1 m bl/d in December. Now probably close to zero
![Libya’s crude oil production](https://ravarumarknaden.se/wp-content/uploads/libya-crude-oil-production.jpg)
Ch2: Iraqi oil production. If the market was to lose this supply for an extended period, then the price impact would be significant
Analys
Anticipated demand weakness sends chills
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Brent crude stabilized around USD 73 per barrel yesterday and this morning, following U.S. inventory data that showed significant draws for yet another week, along with OPEC’s decision to delay output hikes for two months. However, the shift in OPEC+ strategy wasn’t enough to offset the sharp losses in crude prices witnessed over the past few weeks, with Brent falling by USD 8.5 per barrel (10.3%) since late August. This recent decline has largely been driven by concerns over fragile demand.
Looking ahead, despite the bullish U.S. inventory report (detailed below), the market’s focus remains on the anticipated weakness in crude and product demand, which is overshadowing positive signals. Deep concerns persist, especially regarding China, which typically accounts for roughly 40% of annual global demand growth.
Moreover, the current change in OPEC+ strategy does not guarantee stability moving forward. There is still uncertainty around how OPEC+ will proceed: whether it will continue to delay production or release more volumes to the market. Historically, OPEC+ has maintained a ”price floor” at USD 80+ per barrel, stepping in to support prices. However, this floor may now be shifting. Lastly, the Russia-Ukraine diesel shock has mostly dissipated, leading to a decline in the diesel crack and global diesel prices, which in turn is reducing stress on crude markets.
U.S. crude oil refinery inputs averaged 16.9 million barrels per day last week, reflecting a slight increase from the prior week, with refineries operating at 93.3% capacity. U.S. commercial crude inventories dropped by 6.9 million barrels, bringing the total to 418.3 million barrels—about 5% below the five-year average for this time of year, signaling a clear tightness in supply.
Since June, U.S. crude inventories have consistently shown substantial draws (see page 12), underscoring strong implied demand (see page 15) and slower-than-expected production growth. U.S. crude production appears to have plateaued, and its trajectory for the rest of the year will be crucial to monitor.
Gasoline inventories rose by 0.8 million barrels but remained 2% below the five-year average, while distillate (diesel) inventories fell by 0.4 million barrels, standing a significant 10% below their historical average.
On the import side, U.S. crude oil imports averaged 5.8 million barrels per day last week, down by 768,000 barrels from the previous week, further contributing to the supply draw. With China’s weakening economy now a focal point for commodities markets, pushing industrial commodities lower, the energy sector remains vulnerable but resilient for now.
Gasoline production reached 9.7 million barrels per day, and diesel production hit 5.2 million barrels per day, both reflecting steady output. Additionally, overall petroleum inventories fell by 8.0 million barrels (see page 14).
Earlier this week, we released our updated Oil and Gas Price Outlook, which provides detailed projections and insights into market trends through 2027. In the report, we forecast lower oil prices in 2025 as the market shifts to surplus, driven by tepid demand growth – particularly from China – and rising production both within and outside of OPEC+. We expect OPEC+ to tolerate some price declines in exchange for higher volumes, which could lead to increased price volatility. Yet, a market deficit is likely to return in 2026, setting the stage for a price rebound. In the natural gas market, tight LNG supply conditions are expected to sustain upward price pressure through 2024 and 2025, despite high EU inventories, with relief coming in late 2026 as new production capacity becomes available.
Analys
Brent crude will fluctuate more as OPEC+ loosens market control
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Market focuses on China weakness and more supply from OPEC+ while the sound of Israeli rockets in Lebanon one weak ago are fading. Following a high of USD 80.53/b on Monday last week (following Lebanon – Israel rocket exchange on Sunday 25 Aug.) the Brent November contract traded downhill and ended the week at USD 76.93/b. On a Friday to Friday basis however, the November contract was down by only 1.6%. So not at all a total route. This morning the Brent Nov. contract is down 0.7% at USD 76.4/b on combined concerns for the Chinese economy and increasing signs that OPEC+ will indeed lift production in Q4-24 as earlier signaled. The current disturbances in Libya’s oil production could provide room for added supply from OPEC+. But fluctuations in Libya’s oil production has become quite normal over the latest years and any outages will probably be short lived. And to what we can understand from the news flow there has been given signals for restart of production already.
![Bjarne Schieldrop, Chief analyst commodities, SEB](https://ravarumarknaden.se/wp-content/uploads/bjarne-schieldrop-seb.jpg)
Softer towards the end of the year? The Brent crude oil price has a historical tendency for weakness in the latter part of the year. With continued deterioration in China and added barrels from OPEC+ in Q4-24 this could very well be the case also this year.
Brent will likely move over a wider range with softer market control by OPEC+. OPEC+ looks set to move to a softer price control regime. Shifting from a strict ”price” focus regime to some kind of hybrid ”price/volume” market control. This should allow the Brent crude oil price to fluctuate more. The difference between the highest and the lowest Brent crude oil price over the past 400 days is only USD 27.6/b. The median since 2009 is USD 50/b.
Bearish concerns for the future. But market looks tight here and now and Mid-East is very unstable. Lots of bearish talk and concerns, but physical signals are still tight. US oil inventories have been falling steadily and counter seasonally over the past 6 weeks and floating global crude stocks have fallen sharply and by more than 50 m barrels since a peak in June. Combine this with the very unstable situation in the Middle East and it is not so easy to sit with large short positions in oil.
The Brent crude November contract in USD/b
52 week ranking of Net long specs in Brent + WTI and ranking of Brent crude curve backwardation
Net long spec for Brent + WTI in million barrels
Historical average Brent crude oil prices per month since 2008 in nominal USD/b
Brent crude 400 day rolling High-Low price spread in USD/b difference
Total US commercial crude and product stocks in million barrels
Global, floating crude oil stocks in million barrels.
Analys
Fear of coming weakness trumps current tightness
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Brent crude has continued its decline from earlier this week, dropping USD 2 per barrel since yesterday’s high in the afternoon, a decline of approximately 2.6%. It is currently trading at USD 75.9 per barrel, nearing its lowest level since early August and approaching the yearly low of USD 74.8 per barrel from early January.
Looking ahead, despite a bullish U.S. inventory report (detailed below), the fear of future weakness is overshadowing this positive news.
As highlighted in Tuesday’s crude oil comment, at the top of our “worry list” is the deteriorating economic outlook in China, which is worsening more rapidly than previously anticipated. Recent data from July indicates that bank loans to the real economy contracted for the first time in 19 years. Despite lower interest rates, corporations are not borrowing due to a loss of confidence. Fewer loans equate to reduced economic activity, which is evident in the decline in factory output. This situation intensifies concerns about Chinese oil demand, as the market increasingly believes that the weakness in Chinese oil imports may not be a temporary blip but a more sustained issue.
Additionally, yesterday’s sharp crude sell-off was influenced by the U.S. Bureau of Labor Statistics (BLS) adjustment, which revealed 818,000 fewer jobs than expected—the largest downward revision since 2009. While the Fed’s July meeting minutes had already reflected doubts about previous job data, making the revision less surprising, it nonetheless reinforces the view that the labor market is cooling, strengthening the case for a potential rate cut in September.
It is also worth noting that when crude oil prices were at current levels earlier in the year, the ’dated to front’ line was negative, whereas it is now positive. This shift suggests a fairly tight physical market, further evidenced by continuous inventory drawdowns.
U.S. commercial crude oil inventories (excl. SPR) dropped by 4.6 million barrels, bringing the total to 426 million barrels, which is approximately 5% below the five-year average for this time of year. Gasoline inventories fell by 1.6 million barrels and are 3% below the five-year average. Distillate (diesel) inventories also saw a drawdown of 3.3 million barrels, leaving them 10% below the five-year average. Overall, total commercial petroleum inventories declined by 5.9 million barrels last week—a clear indication of current market tightness.
Looking ahead to other potential weaknesses, the normalization of refinery margins suggests significantly less demand from refineries compared to the very strong margins seen in 2022, most of 2023, and the beginning of 2024. Consequently, we can expect reduced crude demand for refining in the future, reinforcing the expectation of “coming weaknesses.” Against this backdrop, a retest of the yearly low remains a possibility.
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