The oil market remains cautious but crude prices have risen over the past few days in response to expectations of higher demand due to a more optimistic economic outlook and to further disruption of production in Libya. At time of writing, a barrel of Brent North Sea for April delivery was worth $59.41 on the Intercontinental Exchange (ICE) in London, up 51 cents from Monday’s close.
Supply-side issues, however, have been the more important factor of the past few months, and growing problems in Libya have served as the main catalyst fueling oil prices. Of course, Libya did not deliberately cut oil production to lift prices; a power-failure disrupted production at the Sarir and Messla fields that were supplying the port of Hariga. The industry had expected a resumption of exports from Marsa al Hariga after the pipeline connecting these to Sarir resumed operations after an attack against the pipeline, two weeks ago, that cut Libya’s oil production to about 150,000 barrels per day (bdp) (the country output an average of 1.7 million bpd during the last months of the Qadhafi regime and reached peaks of over 2.5 million bpd in the OPEC heyday of the 1970s.
Should instability in Libya continue, and the pundits are rather confident that it will, oil prices will reach the so-called psychological barrier of USD 60 in the coming sessions.
The main obstacle to this ‘action’ could come from US oil crude stocks, which Bloomberg expects to see rise by 3.6 million barrels. Moreover, stocks have continued to accumulate at a rapid pace for both refined and crude products. Despite the low prices, moreover, demand outside the US has been lackluster, which should prevent oil returning to USD 100 a barrel in the short or medium terms. European oil demand has been dropping and this, combined with lower US reliance on imported oil, will counterbalance any effects from the growth of Asian demand. The International Energy Agency (IEA) in its World Energy Outlook 2014, predicted that between now and 2040 European consumption of petroleum products will drop by some 30%. Across the Atlantic in the Americas, domestic oil production has increased significantly in the last decade, largely due to the production of shale oil, lowering energy imports from 60% to less than 40% of the total. Consensus forecasts indicate further growth of domestic production of both gas and oil, and the start of energy ‘self-reliance’ by the start of the next decade.
Much is riding on Asian demand and MoneyFarm.com suggests that China’s energy needs will grow between 1.8% and 5.2% (average annual values) for the next 25 years; while India’s demand could increase at a rate between 3.5 and 4.6%. Asia seems to be the only place with potential room for further growth in the consumption of hydrocarbons in the long term. A significant OPEC production cut would have an effect in support of oil prices, but none is forthcoming as Saudi Arabia’s new King Salman has decided to maintain the status quo at least until June.
