Oil Prices Dip Amid China Demand Worries and Libyan Supply Disruptions

Petroleum Price

• Oil prices fell as concerns about decreasing demand due to a slowing Chinese economy outweighed the impact of the closure of oil production facilities in Libya.
• By 0156 GMT, Brent crude futures had fallen by 37 cents, or 0.48%, to $77.15 per barrel, while U.S. West Texas Intermediate (WTI) crude edged up by 28 cents from its Friday close, reaching $73.83 per barrel. MCX Crude oil prices opened at 6235, gaining 0.21%.

Petroleum Demand and Supply

• China's purchasing managers' index (PMI) hit a six-month low in August. On Monday, the country reported that new export orders in July fell for the first time in eight months, and new home prices grew in August at their weakest pace this year.
• In Libya, oil exports at major ports were halted on Monday, and production was curtailed across the country, six engineers told Reuters. This is a continuation of the standoff between rival political factions over control of the central bank and oil revenue.
• The country's National Oil Corporation (NOC) declared force majeure on its El Feel oil field from September 2. Total production had plunged to just over 591,000 barrels per day (bpd) as of August 28, down from nearly 959,000 bpd on August 26, according to the NOC. Production was at about 1.28 million bpd on July 20, the company reported.
• However, some supply is set to return to the market as eight members of the Organization of the Petroleum Exporting Countries (OPEC) and its affiliates, known as OPEC+, are scheduled to boost output by 180,000 bpd in October. Industry sources indicate that the plan is likely to proceed despite demand concerns.
• OPEC planners may decide that the anticipated cuts in U.S. interest rates and the Libyan outage provide space for adding more oil, RBC Capital analyst Helima Croft stated in a note.

Petroleum News

• Saudi Arabia, the world’s leading oil exporter, is likely to reduce prices for most crude grades sold to Asia in October, following a decline in the Middle East benchmark Dubai, according to industry sources.
• The expected price cuts range from 50 to 70 cents per barrel, reflecting weak refining margins in China and an increase in OPEC+ supply.
• The October official selling price (OSP) for Saudi Arabia’s flagship Arab Light crude is anticipated to decrease by 50 to 70 cents per barrel, according to a Reuters survey of five refining sources. This price reduction aligns with the recent downward trend in Dubai price spreads observed last month.
• Weak refining margins, particularly in China, are a significant factor driving these expected cuts. China’s sluggish manufacturing and property sectors have dampened fuel demand, leading to lower margins.
• One source noted, “Margins are bad now overall and worse in China,” adding that September, typically a peak month for oil demand, might disappoint this year.
• In addition to weak margins, the anticipated increase in OPEC+ supply is also influencing the expected price cuts. Starting in October, eight members of the OPEC+ group are scheduled to boost output by 180,000 barrels per day as part of a plan to begin unwinding their recent output cuts of 2.2 million barrels per day. These cuts are expected to remain in place until the end of 2025.
• However, not all analysts agree on the magnitude of the price cuts. Two of the five respondents believe that the Arab Light OSP for October may remain largely unchanged, citing a strengthening of the Dubai benchmark in the final week of trading last month as a possible reason.
• For heavier crude grades like Arab Medium and Arab Heavy, the responses were mixed. Three of the five respondents expect prices to be reduced by less than 50 cents, supported by strong fuel oil demand, while the remaining two foresee price cuts of 60 to 80 cents per barrel.

Expert Opinion

• It is expected that oil will remain under pressure due to ongoing concerns about Chinese demand. Weaker-than-expected PMI data from the weekend is unlikely to alleviate these concerns. Saudi Arabia’s crude OSPs, typically released around the fifth of each month, are expected to set the trend for prices from other major oil exporters in the region, including Iran, Kuwait, and Iraq.
• These prices are anticipated to influence approximately 9 million barrels per day of crude bound for Asia. Saudi Aramco, the state oil giant, is expected to set these prices based on customer recommendations and by calculating changes in the value of its oil over the past month. As a matter of policy, Saudi Aramco officials do not comment on the kingdom’s monthly OSPs.