By Arunima Kumar
(Reuters) -Oil prices dropped more than 3% on Tuesday after Bloomberg News reported that a deal was imminent to resolve a dispute that has halted Libyan production and exports, pushing prices to their lowest since around the beginning of the year.
The news of more crude supply possibly returning to the market came as prices had already fallen on the belief that demand was being undercut because of sluggish economic growth in China, the world’s biggest crude importer.
Brent crude futures were down $3.08, or 4%, to $74.44 a barrel at 1333 GMT, the lowest level since December. West Texas Intermediate crude futures, which did not settle on Monday because of the U.S. Labour Day holiday, were down $2.55, or 3.5%, at $71.00 – their lowest since January.
UBS analyst Giovanni Staunovo said the sell-off was tied to Bloomberg’s report, which quoted the Libyan central banker at the centre of the controversy as saying there were “strong” indications that the political factions involved were nearing an agreement.
Libyan oil exports at major ports were halted on Monday and production curtailed across the country, six engineers told Reuters, continuing a standoff between rival political factions over control of the central bank and oil revenue.
Libya’s National Oil Corp (NOC) declared force majeure on its El Feel oilfield from Sept. 2.
Total production had plunged to little more than 591,000 barrels per day (bpd) as of Aug. 28 from nearly 959,000 bpd on Aug. 26, NOC said. Production was at about 1.28 million bpd on July 20, the company said.
The Libya news compounded an earlier fall in prices tied to weak Chinese economic data.
“The weaker than expected Chinese manufacturing PMI over the weekend likely exacerbated concerns about the Chinese economy’s performance,” said Charalampos Pissouros, senior investment analyst at brokerage XM
On Monday China reported new export orders fell for first time in eight months in July and that prices of new homes rose in August at their weakest pace this year.
Some supply is set to return to the market as eight members of OPEC and affiliates, together known as OPEC+, are scheduled to boost output by 180,000 bpd in October. The plan is likely to go ahead regardless of demand worries, industry sources said.
“It remains to be seen how low prices can go before OPEC+ reacts, as most cartel members need prices above current levels to come close to balancing budgets,” said Panmure Liberum analyst Ashley Kelty.
Disruptions to supply flows from the Middle East after two oil tankers were attacked on Monday in the Red Sea off Yemen were not enough to buoy prices. The tankers did not sustain major damage.
This post is originally published on INVESTING.
