Oil prices sold off heavily in the global commodities market and this pressure has continued in early morning trading today.
ICE Brent settled almost 4.9% lower on the day, leaving it below US$74 per barrel, ING commodities strategists said in Wednesday note.
Analysts said the sell-off was partly driven by a broader risk-off move with equities also coming under significant pressure. Brent crude decreased 1% to $72.75 per barrel, up from the previous session’s close of $73,50. US benchmark West Texas Intermediate ,WTI, fell 1.1% to $68.99 per barrel, after closing at $69.78 in the prior session.
The potential for a return of Libyan supply would have only added further pressure. The governor of the central bank in Libya has said that the western and eastern governments in the country are close to coming to a deal which should see oil production returning to normal levels.
The market is also bracing itself for the gradual return of OPEC+ supply from October, at a time when there is plenty of concern over demand weakness.
The further pressure on prices the more likely that OPEC+ will be forced to scrap plans to bring supply back onto the market.
However, with the balance looking soft through 2025, ING commodities strategists said the question is when the group will eventually be able to bring supply back onto the market without putting significant pressure on prices.
Oil prices are moving downward amid rising expectations that the decision to suspend oil production in Libya could be reversed.
The UN Support Mission in Libya ,UNSMIL, said it hosted separate talks on Monday in Tripoli to resolve a crisis surrounding the Central Bank of Libya.
The discussions were concluded with ‘significant understanding’ to address the crisis and restore the confidence of Libyans and international partners in the vital institution.
‘They further agreed to submit the draft agreement to their respective Chambers for review, with the aim of finalizing and signing the agreement on Tuesday,’ UNSMIL added.
These compromises have eased market players’ concerns about possible supply shortages, putting downward pressure on oil prices.
Meanwhile, macroeconomic data released in the US on Tuesday, supported the predictions the world’s largest oil consuming country could go into recession and caused prices to decline.
The US Institute of Supply Management’s ,ISM, Manufacturing Purchasing Managers Index ,PMI, rose to 47.2 in August, but remained below market expectations. S&P Global’s manufacturing PMI came in at 47.9 in August, slightly below estimates.
After the PMI data, which indicated the continuous contraction in the manufacturing sector, the US 10-year Treasury bond yield fell 4.83%, down 9 basis points.
On the other hand, ongoing conflicts in the Red Sea, a major route for oil and fuel shipments, limits further price decreases by heightening concerns about supply disruptions.
Yemen’s Houthi group said Monday that it targeted an oil tanker in the Red Sea with drones and missiles for breaching its embargo on vessels entering Israeli ports.
The Houthis have been targeting Israeli-linked cargo ships in the Red Sea and Gulf of Aden in solidarity with the Gaza Strip, which has been under an Israeli onslaught since Oct. 7 last year
