Libyan Deal Sparks Oil Price Drop
Oil prices fell more than 4% on Tuesday, hitting their lowest levels in nearly nine months following reports of an imminent deal to resolve a Libyan production and export dispute. Brent crude futures dropped $3.51, or 4.5%, to $74.02 per barrel, marking the lowest level since December.
West Texas Intermediate (WTI) crude futures, which did not settle on Monday due to the U.S. Labor Day holiday, fell $2.97, or 4.1%, to $70.58—its lowest since January.
Libya’s Impending Deal
The United Nations Support Mission in Libya (UNSMIL) announced a significant understanding between rival Libyan factions. Following talks in Tripoli, both sides agreed to review a draft agreement. UNSMIL indicated that the final signing of the deal might occur on Tuesday. Libya’s central bank governor, Sadiq al-Kabir, suggested that the deal could soon resume oil output, as reported by Bloomberg.
China’s Weak Demand
Earlier in the day, oil prices had already declined due to concerns about sluggish economic growth in China. As the world’s largest crude importer, China’s economic slowdown has dampened global oil demand. On Monday, China reported a drop in new export orders for the first time in eight months. Additionally, new home prices in China rose at their slowest pace this year in August.
Libyan Deal & Oil Decline: Market Reactions
Ole Hansen, an analyst at Saxo Bank, attributed the price drop to momentum selling triggered by the news of a possible deal. Despite disruptions to supply from the Middle East, such as the attack on two oil tankers in the Red Sea off Yemen, prices failed to rally. The tankers did not sustain major damage.
OPEC+ Output Increase
Looking ahead, some supply is set to return to the market. OPEC and its affiliates, collectively known as OPEC+, are scheduled to increase output by 180,000 barrels per day (bpd) in October. Despite concerns over demand, this plan is expected to proceed.
Driving Season Disappointments
Hopes that the U.S. driving season would push prices to new highs this summer did not materialize. Fawad Razaqzada, market analyst at Forex, noted that recent data shows no signs of accelerated import demand in China, Europe, or North America. This suggests that the oil market may not tighten as expected a few months ago.
As oil prices continue to fall, market participants are closely watching the developments regarding the Libyan deal and global economic indicators. The resolution of the Libyan dispute and changes in demand patterns will likely play significant roles in shaping the future direction of oil prices.
Chart by Trading View
