Oil Prices Rise over Libyan Output Disruption

Crude oil prices rose yesterday following a severe disruption in the Libyan oil production and comments by officials of the Organisation of Petroleum Exporting Countries (OPEC) that the cartel could extend their production cuts to the end of the year.

OPEC and non-OPEC Joint Ministerial Monitoring Committee (JMMC) had last Sunday agreed to review whether the global deal to curb oil output should be extended by six months.

JMMC convened in Kuwait City for its second meeting last Sunday where it announced that based on the report of the Joint OPEC and non-OPEC Technical Committee (JTC) for the month of February 2017, OPEC and participating non-OPEC countries have continued their progress towards full conformity with their voluntary adjustments in production.

The agreement to cut 1.8 million barrels per day, which came into effect on January 1, 2017, was for six months and is extendable for an additional six months, depending on the status of supply and demand, including global inventories.

The comments that the agreement could be extended, coupled with the drop in Libya’s oil output by roughly a third, or 252,000 barrels per day because of production blockage at the Sharara and Wafa oil fields, has boosted oil prices.

But prices were still weighed on by resurgence in United States oil production and the expectation that inventories there would build up once again, illustrating the persistent global supply overhang that has depressed prices for three years.

Reuters reported that prices for front-month Brent crude futures, the international market benchmark, gained 55 cents to $51.30 per barrel yesterday, while West Texas Intermediate (WTI) futures, the US benchmark, were up 50 cents at $48.23 a barrel.

Brent rebounded from testing a support of $50 a barrel on Monday and was underpinned by a weak dollar, which can attract investors to safer commodity markets while making oil cheaper for countries using other currencies.

The comments from Iranian Oil Minister, Bijan Zanganeh, were followed by a statement from non-OPEC member Azerbaijan that it was ready to join an extension of the deal into the second half of this year.

Analysts polled by Reuters expect U.S. crude oil stocks to have risen by 1.2 million barrels to a fresh record. EIA data is due today (Wednesday), while estimates from the American Petroleum Institute were issued yesterday.

A record amount of US crude oil has found its way to Asia and other destinations this year and more is expected to be shipped out as traders take advantage of arbitrage opportunities by sending excess US oil into regions where it can find buyers.

OPEC and 11 other leading producers including Russia agreed in December to cut their output in the first half of the year.

JMMC had requested the JTC with the OPEC Secretariat to review the oil market conditions and revert to the JMMC in April 2017 regarding the extension of the voluntary production adjustments as stipulated in the Declaration of Cooperation, in order to ensure market stability.