Oil futures fell Monday, with pressure attributed to expectations Libyan crude will soon return to the market, while worries over a rise in European COVID-19 cases and a global equity market selloff added to the negative tone.
West Texas Intermediate crude for October delivery CL.1, -2.31% CLV20, -2.31% fell 83 cents, or 2%, to $40.49 a barrel on the New York Mercantile Exchange, while the global benchmark, November Brent crude BRN.1, -2.20% BRN00, -2.20% shed 88 cents, or 2%, to $42.27 a barrel on ICE Futures Europe.
Reports over the weekend that Libyan military commander Khalifa Haftar, who controls the eastern portion of the country, would lift an eight-month blockade on crude exports that have virtually shut down production contributed to the weaker tone, analysts said.
Analysts at JBC Energy, a Vienna-based consulting firm, changed their base case to a gradual ramp up of Libyan supply starting from the end of the month to 650,000 barrels a day in early 2021. “This level is well below precrisis levels of 1.2 million barrels a day, based on earlier reports of damaged infrastructure,” they said in a Monday note. “This means Libya is set to add 230,000 barrels a day on average over Q4 2020, with a certain upside risk given that steeper than anticipated ramp-up patterns may be possible.”
The prospect of returning Libya production is particularly negative amid uncertainty over the state of the global economy as worries rise over a second wave of COVID-19 infections, analysts said.
“Obviously, the global oil market is in a fragile state, given the slower than expected demand recovery, therefore any additional supply is only going to make efforts from OPEC+ to rebalance the market more difficult,” said Warren Patterson, head of commodities strategy at ING, in a note.
A selloff across global equity markets, tied in part to worries over the rise in COVID-19 cases and the potential for the renewal of restrictions on activity in European countries added to the negative tone, analysts said.