Global oil price trends have recently been volatile, and Libyan oil exports have been blocked, exacerbating market concerns about the global crude oil supply. According to foreign media reports, due to seizures by tribal forces of multiple oil export terminals along the northeast coast and in the south, the country ordered five National Oil Company branches to suspend oil exports, involving more than 50 oil fields and multiple oil ports.
The war between Russia and Ukraine shows no signs of a ceasefire. These factors continue to provide crucial support for international oil prices. In addition, the global crude oil supply tensions may continue to help oil prices remain high. Will oil prices rebound?
The global crude oil supply is very tight
Libya joined the OPEC in 1962 and has the largest proven crude oil reserves in Africa. Libya’s National Oil Company said the order to block oil exports had affected oil production. With only two oil fields in Libya remaining operational; hence, there is an imminent shortage of natural gas and electricity.
Libya’s domestic problems cannot be resolved quickly, and future blockades of oil fields or sudden obstructions may occur. Therefore, the lack of Libyan oil exports will support global oil prices in the short term, but the size of shocks to the upside will not be very extensive. The heightened concerns about the global crude oil supply saw international oil prices rise for four consecutive trading days before pulling back.
On 19 April 2022, UN Secretary-General António Guterres called for urgent measures to stop the outbreak of a full-scale civil war in Libya. Governments are now stepping up their diplomatic efforts to promote peace and a ceasefire between the two sides in the conflict. However, if the situation escalates, it may fuel a further increase in oil prices. Therefore, it is also necessary to pay close attention to the local problem.
What is the future upward momentum of oil prices?
China, the world’s largest importer of crude oil, has had a restraining effect on oil prices as the country’s economic activity slowed in March due to the pandemic restrictions. However, in the future, as the pandemic comes under control and the output data returns to normal levels, it will no longer offset the upward price momentum. In addition, the rally in the US dollar exchange rate has significantly inhibited rising oil prices, which is the main factor behind the declining oil prices in recent days.
As of the close of trading on April 19, the WTI May crude oil futures closed down 5.22% at $102.56 a barrel. Brent Crude Oil Futures for June closed down 5.22 per cent at $107.25 a barrel.
In addition to the suspension of oil production and exports in Libya, the war situation between Russia and Ukraine is still a negative factor. Since the United States has announced that it will release 1 million barrels of oil per day over the next six months starting in May, 180 million barrels of stored oil are expected to be released until early autumn. However, if the War between Russia and Ukraine continues to drag on, the country’s crude oil inventories will be rapidly depleted, and supply will not be able to keep up with the demand growth. The world may find itself in a difficult situation as the crude oil supply gap caused by sanctions against Russia may lead to further oil price increases this year.
We should also pay attention to OPEC members’ plans to increase production. In March, the 13 members only increased output by 57,000 barrels per day, missing their 400,000 barrels target. China’s lockdowns will affect the group’s willingness to increase production. The current situation marked by insufficient oil supply will continue to persist.
In the short term, the release of the strategic crude oil reserves by the United States and other countries into the global market, the sharp decline in demand from China, and the US Dollar’s downward will continue inhibiting surges in oil prices to some extent, resulting in oil prices being stuck at current highs. According to the Bank of America estimates, oil prices could be limited to trading at $120 a barrel this summer, lowering the prospect of oil prices surging mid-year.
In the medium to long term, the imbalance between supply and demand will continue to support oil prices, which may keep oscillating at their current high levels for a long time.