Oil prices rise as concerns over Libyan supply outweigh a smaller-than-expected U.S. inventory drawdown

BY COMFORT OGBONNA

Oil prices rose slightly on Thursday after two days of losses, as concerns about supply disruptions in Libya came back into focus, while a smaller-than-expected decline in U.S. crude inventories dampened demand expectations.

Brent crude futures increased by 15 cents, or 0.19%, reaching $78.80 per barrel by 6:05 AM GMT, while U.S. West Texas Intermediate crude futures rose by 27 cents, or 0.36%, to $74.79 per barrel. Both contracts had fallen by more than 1% on Wednesday, following data showing U.S. crude inventories dropped by 846,000 barrels to 425.2 million last week, falling short of analysts’ expectations from a Reuters poll, which predicted a 2.3 million-barrel decline.

Some analysts noted that concerns over potential supply disruptions from Libya, a member of the Organization of the Petroleum Exporting Countries (OPEC), were supportive of the market. According to Priyanka Sachdeva, a senior market analyst at Phillip Nova, ongoing geopolitical concerns and issues with Libya’s oil supply are likely to keep oil markets on edge and may help prevent prices from dropping further.

Several oilfields in Libya have stopped production amid a conflict over control of the central bank, with one consulting firm estimating disruptions of between 900,000 and 1 million barrels per day for several weeks. Libya’s production in July was around 1.18 million bpd.

The duration of these supply disruptions could affect OPEC+ production plans in October, potentially boosting oil prices if the supply doesn’t recover as expected. ING analysts mentioned in a client note that if Libya’s shutdown lasts, OPEC+ might feel more comfortable increasing supply in the fourth quarter of 2024, as currently planned. However, if the disruption is short-lived, it could make the cartel’s decision more challenging.

“We believe they will be hesitant to bring more supply to the market while there are still concerns about demand,” the analysts added.

Expectations that the U.S. central bank might begin cutting interest rates next month also provided support for oil prices. Raphael Bostic, President of the Federal Reserve Bank of Atlanta, suggested it may be time to lower rates, given that inflation has decreased more than expected and unemployment has risen.

Lower interest rates make borrowing cheaper, which can stimulate economic activity and, in turn, increase demand for oil.