U.S. crude oil falls more than 2% as market hopes Libya production halt will be short lived
U.S. crude oil prices experienced a significant decline on Tuesday, falling more than 2% to close below $76 per barrel. This retreat follows a surge in prices the previous day driven by reports of a potential halt in oil production and exports from Libya, a key OPEC member.
Market Reaction
West Texas Intermediate (WTI) crude oil for October delivery settled at $75.53 per barrel, down $1.89, or 2.44%. Year-to-date, WTI has gained 5.4%. Meanwhile, Brent crude oil, the global benchmark, fell $1.88, or 2.31%, to $79.55 per barrel. Brent is up 3.3% for the year.
The initial price spike was fueled by concerns that Libya’s production disruptions could create a shortfall in global oil supplies. Libya, which produces approximately 1.2 million barrels per day, exports most of its crude oil to international markets, particularly in Europe.
Production Disruptions
Libya’s oil production has faced interruptions due to political tensions between rival governments in Tripoli and Benghazi. The Benghazi government, which controls the eastern part of the country, announced a production halt amid a dispute over leadership of the central bank. The abrupt announcement led to a surge in oil prices as traders anticipated a significant supply disruption.
However, the market is now tempering its expectations. Sara Vakhshouri, founder of SVB Energy International, suggested that the disruption might be gradual rather than a complete shutdown. This sentiment is reflected in the easing of oil prices as the market adjusts to the possibility of a less severe impact.
Forecast Adjustments
Goldman Sachs has revised its price forecasts in light of the situation. The investment bank lowered its Brent crude price forecast by $5, now predicting a range of $70 to $85 per barrel, with an average of $77 in 2025, down from the previous forecast of $82.
The adjustment is partly due to softer demand from China, as the country shifts from gasoline-powered vehicles to electric ones, and increased supply efficiency from U.S. production. Goldman’s Daan Struyven highlighted these factors in a client note, emphasizing the evolving dynamics in the global oil market.
Additional Insights
- RBOB Gasoline for September delivery fell 3 cents, or 1.45%, to $2.24 per gallon, up 6.8% year-to-date.
- Natural Gas for September delivery decreased by more than 5 cents, or 2.66%, to $1.90 per thousand cubic feet, with a year-to-date decline of 24.3%.
As the oil market continues to navigate these disruptions and changing dynamics, investors and analysts will be closely watching the ongoing developments in Libya and their potential impact on global oil prices.