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Crude oil prices are falling again, on word of OPEC member Libya’s plan to reopen its oil ports as soon as this coming weekend. As of this writing late on Monday afternoon, Texas Intermediate (WTI) and Brent crude futures are lower, with WTI October deliveries down to $37.26 per barrel, while Brent November deliveries are below $40.
Today’s decline comes following a statement from the U.S. Embassy in Libya, released on Saturday, that the factions fighting over control of the North African country had reached an agreement that would allow the national oil company to begin exporting crude oil from the country’s terminals that have been blockaded since the beginning of the year.“Full reopening” of Libya’s oil patch is flooding an oversupplied global market
Over the past year, Libya’s internal struggles, and the closure of its oil export facilities, have cut its oil exports from over 1 million barrels per day to about 100,000 barrels. The removal of this oil is a bare fraction of the decline in global demand during the coronavirus pandemic, but it’s certainly helped remove some production from an oversupplied market.
According to the press release, the intent is for a “full reopening” of the country’s energy sector. 2020 has been brutal across the sector, with global demand still down by double digits in many countries as transportation and industrial activity remain suppressed by the ongoing pandemic.
More pain to come?
Libya’s weekend announcement comes after a brutal week for oil prices. The U.S. market remains significantly oversupplied as demand flatlined over the summer peak season. And after months of focusing heavily on demand from China, Saudi Arabia turned its eye on the U.S. market last week, cutting prices to American refineries for the first time in six months, even as it lowered prices to Asian customers below its own benchmark targets.
The combination is likely to put immense pressure on U.S. oil producers and prices. Demand is unlikely to rebound quickly, and global giants like Saudi Arabia and Libya can easily win a price war with U.S. independents, most of which can’t produce oil profitably for less than $40 per barrel. Many need prices consistently above $50 to cover production and corporate costs.
The news just continues to get worse and worse for the oil patch, and companies like Occidental Petroleum (NYSE:OXY), which were counting on crude prices holding above $40 in the second half of the year, just saw their path forward get much, much more complicated.