Oil Prices Plunge Over 3% Amid Libya Dispute Resolution and Weak Chinese Economic Data

Oil prices took a significant hit, dropping over 3% on Tuesday following reports from Bloomberg News that a resolution to the ongoing Libyan dispute is imminent. The conflict had previously halted oil production and exports in Libya, and the potential for renewed supply pushed oil prices to their lowest levels in months.

The possibility of more crude entering the market comes at a time when oil prices were already declining due to concerns over weakening demand, particularly from China, the world's largest crude importer. The combination of increased supply and reduced demand has created a perfect storm, leading to sharp declines in oil futures.

As of 1333 GMT, Brent crude futures fell by $3.08, or 4%, reaching $74.44 per barrel—the lowest since December. West Texas Intermediate (WTI) crude futures dropped by $2.55, or 3.5%, to $71.00 per barrel, hitting their lowest point since January. The decline followed Bloomberg’s report quoting the Libyan central banker at the heart of the conflict, suggesting that there are “strong” signs that the political factions involved are nearing a settlement.

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Libya has been grappling with a standoff between rival political factions over control of its central bank and oil revenue, leading to a halt in oil exports from major ports and a reduction in production. On Monday, Libya's National Oil Corporation (NOC) declared force majeure on the El Feel oilfield from September 2nd, further impacting production. According to NOC, total production plummeted to around 591,000 barrels per day (BPD) by August 28th, a significant drop from nearly 959,000 BPD just two days earlier. Production levels had been at approximately 1.28 million BPD as of July 20th.

The news from Libya added to the downward pressure on oil prices, which were already falling due to weak economic indicators from China. Over the weekend, China reported that its manufacturing PMI had come in lower than expected, raising concerns about the overall health of the Chinese economy. Additionally, new export orders fell for the first time in eight months in July, and the prices of new homes in China rose at their slowest pace this year in August.

Adding to the pressure, eight members of OPEC and its affiliates, collectively known as OPEC+, are set to increase oil output by 180,000 BPD in October. This increase is expected to go ahead despite the current concerns about demand, according to industry insiders. Analysts are watching closely to see how far oil prices can fall before OPEC+ takes action, given that many of its members rely on higher prices to balance their budgets.

Meanwhile, disruptions to oil supplies in the Middle East, following an attack on two oil tankers in the Red Sea near Yemen, were not enough to support oil prices. While the tankers did not suffer significant damage, the incident underscored the ongoing volatility in the region.

As markets adjust to these developments, the coming weeks will be critical in determining the direction of global oil prices.

Reference: MoneyControl