Thanks to Libya's slight comeback, oil prices settle at one month low
Brent crude oil traded at a one-month low below $109 a barrel on Wednesday after a Libyan oilfield restarted and supply worries faded, prompting traders to reduce long positions.
Libya has restarted the 340,000-barrel-per-day (bpd) El Sharara field after protesters ended a four-month strike, which could double the country’s current crude output.
The government has also taken back control of the Ras Lanuf and Es Sider oil ports, ending an almost year-long occupation that reduced Libya’s output to less than a quarter of the 1.4 million bpd it was pumping before protests began last summer.
Brent crude futures were down 28 cents at $108.66 a barrel at 1315 GMT, having hit a one-month low of $108.41 in the session.
Brent is on course to fall for an eighth straight session in what would be its longest losing streak since May 2010.
The August contract is now trading at a discount of about 15 cents to the September contract.
US crude was down by 57 cents at $102.83 a barrel.
The price spread between the two benchmarks touched the narrowest point in almost a month at $5.20 on Wednesday, driven by speculators dumping Brent.
“Subsiding supply risk is pushing prices lower,” said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt. He added that there was more speculative length to come out of the market. “The long positions in Brent are still at record levels, so a further correction is expected.” Christopher Bellew, a broker at Jefferies Bache in London, said there was no reason why Brent couldn’t fall further, suggesting it might drop to $106 or $105 a barrel this week.
RISK PREMIUM REDUCES
Fund managers and traders rushed into Brent when Islamic militants rampaged across Iraq in June. To date, the violence has had a very limited impact on crude exports and now many are taking profits.
“Initially, the risk premium was there but eventually, as the market realises the impact to actual supply is not there or limited, the premium comes off,” said Abhishek Deshpande, an oil analyst at Natixis in London.
He added that the market appeared to have enough supply, with Saudi Arabia ramping up production. The kingdom produced 9.78 million bpd of crude oil in June, up from 9.71 million in May.
At the same time there is low demand for crude oil from European refiners, which have been struggling with weak margins because of an influx of diesel from the United States, Russia and Asia.
This has prompted many to cut run rates drastically, or undertake extensive maintenance at the height of the summer season.
“European refiners are having a bit of a tough time. There’s a lot of product coming from the (United) States into Europe, which has depressed refining margins, and that’s probably one of the reasons why crude is weak,” Bellew said.
The US Energy Information Administration will release weekly crude oil stocks data on Wednesday. The consensus forecast is for a fall in US crude stocks of 2.2 million barrels.