Oil fluctuates as traders weigh US gasoline stocks against overall demand forecast
Oil prices recovered early losses today as the market opted to keep levels above $70 dollars, weighing the positive overall demand forecast against a gasoline stocks build in the US and a return of Libyan production
By Louise Dickson, Oil Markets Analyst, Rystad Energy
Oil prices started the day on a bearish direction as the market initially priced in concern after a reported build in US gasoline stocks and a return of Libyan oil production, but the losses were later offset by optimism that the strongest demand uptick is ahead of us in the summer season.
The market seems convinced that both Brent and WTI deserve to be traded above $70 dollars under the current demand trajectory and maintaining these levels shows that patience prevails against last week’s gasoline inventories upset.
The rise in US gasoline stocks, which climbed to 3-month high, is however a reminder that the journey towards normal, pre-pandemic oil consumption levels is not a straight route.
Despite this morning’s temporary price excitement dampening, there is still reason to be bullish on gasoline demand, especially in highly-vaccinated countries like the US, in the near term.
The height of the US summer driving season generally hits in August, so there is still time for sustained demand recovery and subsequent increased refinery runs to meet end-user consumption of products such as gasoline, diesel, and jet fuel.
The return of Libyan production after a crucial pipeline leak also weighed down prices in the early trade, but again, there is reason to be bullish in the long-term on Libya oil supply.
Even though the incident, which affected the country’s largest field, El Sharara, was quickly resolved, it still highlights the underlying cracks in Libya’s oil sector.
The pipeline leak, similar to the production stop in April 2021, is related to a general lack of capital infusion to keep oil production steady at 1.2 million bpd.
After losing nearly 8 months of oil export revenues in 2020 due to a political force majeure, Libya is keen to keep the taps open and is targeting 2021 year-end production of 1.45 million bpd, a lofty goal given the political hurdles ahead. A level closer to the current output of 1.2 million bpd is more reasonable.
The long withstanding civil war in Libya and lack of a democratically elected stable central government have kept international oil companies at bay, preventing large capital infusions. Money is needed to repair gaining infrastructure and prevent incidents such as pipeline leaks.
An additional constraint is a lack of government funds to prevent such unplanned outages as pipeline leaks. Access to governmental funds may become more contested leading up to the country’s presidential election in December 2021.
The Libya pipeline leak is a useful reminder that delaying maintenance on oil fields and infrastructure can lead to unplanned outages and price upside.
Deferred improvements on field operations and pipelines in Libya are tied to the fragile political stability, but a general trend of deferred maintenance due to the Covid-19 pandemic may also provide some price upside as operators struggle to appropriately time maintenance.
Staff Writer
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and...
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Oil fluctuates as traders weigh US gasoline stocks against overall demand forecast
Oil prices recovered early losses today as the market opted to keep levels above $70 dollars, weighing the positive overall demand forecast against a gasoline stocks build in the US and a return of Libyan production
Oil prices started the day on a bearish direction as the market initially priced in concern after a reported build in US gasoline stocks and a return of Libyan oil production, but the losses were later offset by optimism that the strongest demand uptick is ahead of us in the summer season.
The market seems convinced that both Brent and WTI deserve to be traded above $70 dollars under the current demand trajectory and maintaining these levels shows that patience prevails against last week’s gasoline inventories upset.
The rise in US gasoline stocks, which climbed to 3-month high, is however a reminder that the journey towards normal, pre-pandemic oil consumption levels is not a straight route.
Despite this morning’s temporary price excitement dampening, there is still reason to be bullish on gasoline demand, especially in highly-vaccinated countries like the US, in the near term.
The height of the US summer driving season generally hits in August, so there is still time for sustained demand recovery and subsequent increased refinery runs to meet end-user consumption of products such as gasoline, diesel, and jet fuel.
The return of Libyan production after a crucial pipeline leak also weighed down prices in the early trade, but again, there is reason to be bullish in the long-term on Libya oil supply.
Even though the incident, which affected the country’s largest field, El Sharara, was quickly resolved, it still highlights the underlying cracks in Libya’s oil sector.
The pipeline leak, similar to the production stop in April 2021, is related to a general lack of capital infusion to keep oil production steady at 1.2 million bpd.
After losing nearly 8 months of oil export revenues in 2020 due to a political force majeure, Libya is keen to keep the taps open and is targeting 2021 year-end production of 1.45 million bpd, a lofty goal given the political hurdles ahead. A level closer to the current output of 1.2 million bpd is more reasonable.
The long withstanding civil war in Libya and lack of a democratically elected stable central government have kept international oil companies at bay, preventing large capital infusions. Money is needed to repair gaining infrastructure and prevent incidents such as pipeline leaks.
An additional constraint is a lack of government funds to prevent such unplanned outages as pipeline leaks. Access to governmental funds may become more contested leading up to the country’s presidential election in December 2021.
The Libya pipeline leak is a useful reminder that delaying maintenance on oil fields and infrastructure can lead to unplanned outages and price upside.
Deferred improvements on field operations and pipelines in Libya are tied to the fragile political stability, but a general trend of deferred maintenance due to the Covid-19 pandemic may also provide some price upside as operators struggle to appropriately time maintenance.
Staff Writer
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and... More by Staff Writer
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