Oil Rally Fizzles as Prices Made Vulnerable by Libyan Recovery

Oil’s rally above $50 a barrel is running out of steam after Libyan production returns, bringing the focus back to OPEC.

Futures in New York extended losses after dropping 0.7 percent on Monday, following a 5.5 percent jump last week. While OPEC output fell by 200,000 barrels a day in March, the decline was helped by cuts in Nigeria and Libya that are exempt from its production-curb deal to shrink a global glut, a Bloomberg News survey shows. Libya was said to resume pumping at its biggest field after about a week of disruption that had helped boost prices.

Oil’s climb last week, its most since December, was also aided after Kuwait and other producers from the Organization of Petroleum Exporting Countries joined with Oman to voice support for an extension of the six-month deal to reduce output that began in January. OPEC Secretary-General Mohammad Barkindo said Sunday that he is “cautiously optimistic that the market is already rebalancing,” even as data showed the number of active oil rigs in the U.S. rose to the highest since September 2015.

“It seems that the stoppages in Libya appear to be shorter in nature, less protracted,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by telephone. “The faster it comes back, the effects in terms of price are less lasting. That leaves the oil market in the same sort of conundrum as it was before, which is, what is OPEC going to do?”

The group will meet May 25 in Vienna to make a decision on whether to extend production cuts.

West Texas Intermediate for May delivery was at $50.06 a barrel on the New York Mercantile Exchange, down 18 cents, at 9:53 a.m. in London. Prices slipped 36 cents to close at $50.24 on Monday. Total volume traded was about 35 percent below the 100-day average.

Brent for June settlement was down 19 cents at $52.93 a barrel on the London-based ICE Futures Europe exchange, after falling 0.8 percent on Monday. The global benchmark crude traded at a $2.40 premium to June WTI.

Libyan Rebound

Libya’s crude production rebounded to about 660,000 barrels a day as the OPEC nation’s biggest oil field resumed output, according to a person familiar with the matter. The nation’s output had dropped to about 500,000 barrels a day last week when production was halted at the Sharara field.

OPEC pumped 32.095 million barrels a day last month, based on information compiled from analysts, oil companies and ship-tracking data. Among the 10 members bound by production caps, compliance weakened to 89 percent of pledged reductions from 104 percent. As well as Nigeria and Libya, Saudi Arabia buoyed the group’s effort by cutting its own output by more than it agreed late last year.

Oil-market news:

• ·         Since mid-February, between 10 million and 20 million barrels have left the Caribbean, according to estimates from traders who asked not to be named because their data is proprietary. The draw, hardly noticed by most in the market, reflects the impact of the output cuts orchestrated by OPEC and Russia.
• ·         Canadian crude shipments to the U.S. are poised to shrink just as the effects of OPEC-led output cuts are being felt in the Caribbean. That’s good news for Mexico and other local oil producers.

 Source: Bloomberg