Key takeaways:

1.       EIA data shows US crude, gasoline stocks fell last week
2.       China demand concerns persist
3.       Libya's oilfield closures continue to escalate

On Thursday, during U.S. trading hours, oil prices surged over 2% at one point due to reports of Iraq reducing September oil production, supply disruptions in Libya, and strong U.S. economic data.
 

Brent crude prices are falling

Brent crude prices, after falling more than 3% over the past two trading days, briefly approached $80, while WTI crude prices climbed above $76 per barrel at one point.

As loading operations at five Libyan export terminals were ordered to halt, oil prices further surged. This comes as the country’s production has already been cut by more than half this week, threatening to remove nearly 1 million barrels per day from the global market.

Reasons behind the oil price falling:
1.       Global oil prices have declined for three consecutive days, with a nearly 5% drop since July 4.
2.       The fall is driven by increasing concerns over weakening demand, especially from China.
3.       Despite this, the U.S. raised its oil price forecast for the second half of 2024 last week.

Scott Shelton, an energy expert at TP ICAP Group, commented, “The ongoing production halt in Libya will almost wipe out the expected inventory growth in Q4 and trigger a stock drawdown, bringing inventories to dangerously low levels.”
 

Libya's oil production was shut down

On Thursday, more than half of Libya's oil production was shut down, around 700,000 barrels per day, compared to the country’s July output of approximately 1.18 million barrels per day. Consulting firm Rapidan Energy Group estimated that the loss in production could reach 900,000 to 1 million barrels per day and last for several weeks.

Disputes over control of the Libyan central bank are threatening to plunge the country into a new phase of instability. Libya, a major oil producer, is divided into eastern and western factions with backing from Turkey and Russia.
 

Further oil price declines expected

Engineers reported on Thursday that output from oil fields controlled by Libya's Waha Oil Company had dropped from 280,000 barrels per day to 150,000 barrels, with further declines expected. They also stated that production from the Sharara, Sarir, Abu Attifel, Amal, and Nafoora oil fields has been halted or reduced.

Phillip Nova's senior market analyst Priyanka Sachdeva noted that amid rising geopolitical concerns, Libya's supply disruptions will strain the oil market and could limit any price declines.

In addition, sources indicated that Iraq plans to cut its oil production to 3.85 million to 3.9 million barrels per day in September. Iraq also canceled a shipment of 1 million barrels in August to reduce exports.

Earlier data showed that the U.S. economy grew slightly faster in the second quarter than initially reported, partly reflecting an upward revision in consumer spending. Data released on Thursday showed that U.S. GDP grew at an annualized rate of 3% from April to June, exceeding the previous estimate of 2.8%. Personal spending, a key driver of economic growth, increased by 2.9%, higher than the previous forecast of 2.3%.

Concerns Over Slowing Demand from China

Traders and investors have attributed the price drop to fears that China's economy may not be able to support the previously projected levels of oil consumption. The country's second-quarter economic growth slowed more than expected, and doubts remain about whether top Communist Party officials are willing to implement reforms to address an economy hampered by a struggling real estate sector.
At the same time, average crude shipments from Russia over the past four weeks have fallen to their lowest levels since January, possibly indicating weakening demand in other regions. This decline could also suggest greater adherence to OPEC+ production cuts.
 

OPEC+ plan to increase supply

Goldman Sachs and Morgan Stanley recently lowered their oil price forecasts for 2025, expecting an oversupply in the oil market next year due to a slowdown in Asia's economic recovery.

Despite this, crude oil prices have risen slightly this year, though the potential for OPEC+ to increase production starting in October continues to loom over the market. According to a media survey, traders remain divided on whether the planned output hike will go ahead.

ING analysts stated in a client report, “A prolonged supply disruption in Libya would provide OPEC+ with more confidence in sticking to its current plan to increase supply in Q4 of 2024.”
 

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