Oil Declines as Libya’s Top Field Restart Eclipses Red Sea Risks

By Bloomberg

Jan 22, 2024

image is BloomburgMedia_S7M5UET0AFB400_22-01-2024_07-08-55_638414784000000000.jpg

A warning sign near an oil drilling rig in Midland, Texas, US, on Thursday, March 2, 2023. Thousands of miles away from the turmoil on Wall Street, Midland, Texas that ranked No.1 in the US for inflation just over a year ago has since ceded that title – only to lay claim to a different one: the country’s pay-raise capital. Photographer: Sergio Flores/Bloomberg

(Bloomberg) -- Oil fell as OPEC member Libya restarted output at its largest field, bolstering global supplies and overshadowing for now concerns about tensions in the Red Sea that look set to continue disrupting shipping.

Global benchmark Brent dropped toward $78 a barrel, falling for the third day in four, while US counterpart West Texas Intermediate was near $73. Libya’s National Oil Corp. said that flows from Sharara — which previously pumped about 270,000 barrels a day — would resume after a three-week stoppage.

Elsewhere in the Middle East, traders are expecting prolonged disruption to shipping in the Red Sea and Suez Canal as the US attempts to prevent Iran-backed Houthi rebels in Yemen from attacking vessels. Military action to deter the assaults will take time, according to a Biden administration official, Jon Finer, who hinted Washington could take extra steps in coming days.

Crude has struggled for direction this year, rising and falling on alternate weeks. That see-saw pattern has arisen as the impact of tensions across the Middle East, including the Israel-Hamas war in the Gaza Strip, is balanced by expectations that oil markets will remain amply supplied. Last week, the International Energy Agency highlighted gains in production outside the Organization of Petroleum Exporting Countries, while demand growth slows.

Oil markets have factored in the impact of the Red Sea disruptions and the Israel-Hamas conflict, according to Vandana Hari, founder of Singapore-based analysis firm Vanda Insights. “Coupled with continuing economic worries, it looks like they will continue to keep crude range-bound,” she said.

Still, some metrics show signs of tightening, with WTI’s prompt spread — the difference between its two near contracts — flipping into a bullish, backwardated structure last week. That follows frigid weather in the US, which has knocked out millions of barrels of supply and may require weeks to restore.

In Europe, meanwhile, a fire that halted fuel production over the weekend at Novatek PJSC’s plant in the Baltic Sea port of Ust-Luga was linked by Ukrainian media to Kyiv’s special forces. The incident puts a spotlight back on Russian flows as Moscow’s war with Ukraine drags on.

By Elizabeth Low