Oil prices plummeted dramatically on the global commodities market, and this pressure persisted into early morning trade today. ICE Brent declined roughly 4.9% on the day, falling below US$74 per barrel, according to ING commodities strategists in a note released Wednesday.
Analysts believe the sell-off was spurred by a larger risk-off trend, which also put pressure on equities. Brent crude slipped 1% to $72.75 a barrel, up from the previous session’s close of $73.50. The US benchmark West Texas Intermediate (WTI) fell 1.1% to $68.99 a barrel, after closing at $69.78 the previous session.
The possibility of restoring Libyan supply would have just heightened the pressure. The head of the Libyan National Bank has claimed that the western and eastern governments in the country are close to coming to a deal which should see oil production returning to normal levels.
The market is also bracing itself for the gradual return of OPEC+ supply in October, at a time when there is plenty of concern over demand weakness. The further pressure on prices, the more likely it is that OPEC+ will be forced to scrap plans to bring supply back onto the market.
However, with the balance looking soft through 2025, ING commodities strategists said the question is when the group will eventually be able to bring supply back onto the market without putting significant pressure on prices.
Oil prices are moving downward amid rising expectations that the decision to suspend oil production in Libya could be reversed. The UN Support Mission in Libya (UNSMIL) said it hosted separate talks on Monday in Tripoli to resolve a crisis surrounding the Central Bank of Libya.
The discussions were concluded with ‘significant understanding’ to address the crisis and restore the confidence of Libyans and international partners in the vital institution.
‘They further agreed to submit the draft agreement to their respective chambers for review, with the aim of finalizing and signing the agreement on Tuesday,’ UNSMIL added. These compromises have eased market players’ concerns about possible supply shortages, putting downward pressure on oil prices.
Meanwhile, macroeconomic data released in the US on Tuesday supported the predictions that the world’s largest oil-consuming country could go into recession and cause prices to decline. The US Institute of Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) rose to 47.2 in August but remained below market expectations. S&P Global’s manufacturing PMI came in at 47.9 in August, slightly below estimates.
After the PMI data, which indicated the continuous contraction in the manufacturing sector, the US 10-year Treasury bond yield fell 4.83%, down 9 basis points. On the other hand, ongoing conflicts in the Red Sea, a major route for oil and fuel shipments, limit further price decreases by heightening concerns about supply disruptions.
Yemen’s Houthi group said Monday that it targeted an oil tanker in the Red Sea with drones and missiles for breaching its embargo on vessels entering Israeli ports.
The Houthis have been targeting Israeli-linked cargo ships in the Red Sea and Gulf of Aden in solidarity with the Gaza Strip, which has been under an Israeli onslaught since Oct. 7 last year.
