June 23, 2024
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Oil Prices Surge Over $1 Amid Libya’s Oilfield Disruption and Red Sea Tensions

Oil prices experienced a notable uptick, rising by over $1 per barrel on Wednesday, fueled by reports of disruptions in Libya’s top oilfield and escalating tensions in the Red Sea. Brent crude saw a gain of $1.34, reaching $77.23 per barrel, while U.S. West Texas Intermediate crude futures increased by $1.29, reaching $71.67 per barrel by 1450 GMT.

Protests in Libya have led to a partial reduction in output at the Sharara oilfield, producing 300,000 barrels per day (bpd), according to information from two engineers speaking to Reuters. Analysts, such as Viktor Katona from Kpler, anticipate the disruption to be short-lived but acknowledge its impact on pushing Brent prices upward.

Earlier in the week, oil prices had already climbed approximately $2 due to Houthi fighters’ attacks on vessels in the Red Sea. On Wednesday, the Iran-backed group claimed to have targeted a container ship bound for Israel, following the U.S. Central Command’s report of Houthi-fired anti-ship ballistic missiles in the southern Red Sea.

The situation escalated further as Israeli forces intensified their bombing of the Gaza Strip, extending the conflict into Lebanon with the killing of Hamas’ deputy leader in Beirut. Concerns arise over the potential closure of vital oil transportation waterways and disruptions to trade flows if the conflict expands.

While both oil benchmarks concluded Tuesday with more than a 1% decrease, attributed to diminished optimism regarding early and aggressive U.S. interest rate cuts, the current surge reflects ongoing geopolitical uncertainties. Anticipation of ample oil supply in the first half of 2024 has tempered prices ahead of the upcoming OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting in early February.

Analysts are closely monitoring the demand side, questioning whether central banks can achieve the desired soft landing for the global economy. Craig Erlam, an analyst from OANDA, highlights that any outperformance in the global economy could ease pressure on OPEC+, particularly as compliance with quotas appears challenging.

As the market awaits the weekly U.S. crude and product inventory reports, analysts polled by Reuters anticipate a decline in crude stockpiles for the previous week, with expected increases in distillate and gasoline stocks.

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