North Sea Supply Increase Tempers Market Sentiment Amid U.S. Inventory Fluctuations

Price

• Oil prices inched higher on Friday as investors weighed supply concerns in the Middle East, although signs of weakened demand limited gains.
• Brent crude futures for October delivery, which expire on Friday, were up 23 cents, or 0.3%, at $80.17 a barrel by 0410 GMT.
• The more actively traded November contract rose 20 cents, or 0.2%, to $79.02. U.S. West Texas Intermediate crude futures gained 18 cents, or 0.2%, to $76.09. MCX crude oil prices opened at 6400 with a gain of 0.60%.

Demand and Supply

• More than half of Libya's oil production, or about 700,000 barrels per day (bpd), was offline on Thursday, and exports were halted at several ports following a standoff between rival political factions.
• Libyan production losses could reach between 900,000 and 1 million bpd and last for several weeks, according to consulting firm Rapidan Energy Group.
• Meanwhile, Iraqi supplies are also expected to shrink after the country's output surpassed its OPEC+ quota, a source with direct knowledge of the matter told Reuters on Thursday.
• Iraq plans to reduce its oil output to between 3.85 million and 3.9 million bpd next month. Brent and WTI, however, are still headed for declines of 0.7% and 2.3% for August, marking their second straight monthly drops.
• Worries over demand continue to weigh on the market, with U.S. inventory data showing a crude stock draw for the week ending Aug. 23 around a third smaller than expected.

News

• Crude oil prices rose by 1.18% to settle at 6,362, driven by concerns over supply disruptions in Libya, which helped counterbalance a smaller-than-expected draw in U.S. crude inventories.
• Libya's Waha Oil Company significantly cut production from 280,000 barrels per day (bpd) to 150,000 bpd, with further reductions expected.
• This reduction in supply comes as some Libyan oilfields halted production amid a struggle for control of the central bank, contributing to an overall decline in production by approximately 700,000 bpd.
• These supply worries provided some support to crude prices, especially considering Libya's significant role as a member of OPEC.
• Despite these concerns, supply from the North Sea is expected to rise, with the five crude oil grades underpinning the Brent benchmark projected to average 610,000 bpd in October, up from 536,000 bpd in September.
• This increase in supply slightly tempered the bullish sentiment in the market. In the U.S., crude oil inventories fell by 0.846 million barrels for the week ending August 23, 2024, less than the anticipated 3-million-barrel reduction.
• Stocks at the Cushing, Oklahoma delivery hub also decreased by 668,000 barrels. However, gasoline inventories saw a significant decrease of 2.203 million barrels, well above the projected 1.5-million-barrel drop, while distillate fuel inventories rose by 0.275 million barrels against a forecasted drop of 0.55 million barrels.
• On the technical front, the market experienced short covering as open interest dropped by 11.93% to settle at 6,163 contracts. Crude oil currently has support at 6,237, with a potential test of 6,112 if this support is breached. Resistance is expected at 6,473, and a move above this level could see prices testing 6,584.

Expert Opinion

• The market is concerned about the medium-term outlook, with oil balances for 2025 looking weak. We believe OPEC will have no choice but to delay the phase-out of voluntary production cuts if it wants higher prices.
• The Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, are set to gradually phase out voluntary production cuts of 2.2 million bpd over the course of a year from October 2024 to September 2025.