Oil crashes 5% to hit nine-month low on reports of Libya dispute resolution; Brent slips below $74, erases 2024 gains

International crude oil prices crashed five per cent on Tuesday, September 3, to hit their lowest levels in nine months after reports emerged that a deal was in the offing to resolve a dispute that has halted Libyan production and exports. The Libya news compounded an earlier price fall tied to weak Chinese economic data.

Brent crude futures were last down $3.51, or 4.5 per cent, to $74.02 a barrel, the lowest level since December. The global benchmark had slipped below $74 per barrel during the session, completely erasing its gains made in 2024 so far. 

US West Texas Intermediate crude futures, which did not settle on Monday because of the US Labor Day holiday, were down $2.97, or 4.1 per cent, at $70.58 - their lowest price since January. Back home, crude oil futures last traded 4.66 per cent lower at ₹5,932 per barrel on the multi commodity exchange (MCX).

Also Read: Libya’s political feud threatens return of oil supply chaos

‘’The concerns about Chinese demand, exacerbated by the ongoing crisis in the real estate market, are limiting gains in crude prices. We expect crude oil prices to remain volatile. Oil has support at $74.70-74.00 and resistance at $76.00-76.65. In INR terms, crude oil has support at ₹6,300-6,250 and resistance at ₹6,420-6,500,'' said Rahul Kalantri, VP of Commodities, Mehta Equities.

Oil crashes to nine-month low: What's behind the bearish sentiment?

-Ahead of the news of more oil possibly returning to the market, prices had fallen on the belief that demand was undercut because of sluggish economic growth in China, the world's biggest crude importer.

The United Nations Support Mission in Libya (UNSMIL) said rival Libyan factions reached a "significant" understanding following talks in Tripoli to help resolve the crisis. UNSMIL said the two sides agreed to review a draft agreement and finalise and sign it on Tuesday.

Also Read: Oil gets lift from Libyan force majeure declaration at key field

-Libya's central bank governor, Sadiq al-Kabir, said a deal appears imminent to resolve the dispute and spur the resumption of oil output, Bloomberg reported on Tuesday. The speculation about the deal triggered momentum-selling

-According to Reuters, Libyan oil exports at major ports were halted on Monday, and production was curtailed across the country, continuing a standoff between rival political factions over control of the central bank and oil revenue.

-Libya's National Oil Corp (NOC) declared force majeure on its El Feel oilfield on September 2. The total production had plunged to little more than 591,000 barrels per day (bpd) as of August 28 from nearly 959,000 bpd on August 26, NOC said. Production was at about 1.28 million bpd on July 20

-China reported on Monday that new export orders fell for the first time in eight months in July and that prices of new homes rose in August at their weakest pace this year. Analysts said the US driving season failed to propel oil prices to new highs in 2024.

-Analysts added that recent data shows no signs of any acceleration in import demand in China, Europe or North America, which points to a situation where the oil market is not going to be as tight as expected a few months ago

-Some oil supply is set to return to the market as the Organization of Petroleum Exporting Countries and its allies (OPEC+) are scheduled to boost output by 180,000 bpd in October. The OPEC cartel's plan is likely to go ahead regardless of demand worries

-Disruptions to supply flows from the Middle East after two oil tankers were attacked on Monday in the Red Sea off Yemen were not enough to propel prices. The tankers did not sustain major damage.

-The concerns about China have only grown louder recently after a drumbeat of economic data over the weekend raised doubts that the world’s top crude importer may struggle to meet this year’s economic growth target.

Also Read: Oil plunges as rising supplies, tepid demand intensify gloom

OPEC output steady in August

-OPEC’s oil production changed little last month, as disruption in Libya was offset by marginal gains in other members. According to Bloomberg, OPEC pumped 27.06 million barrels daily in August -about 70,000 per day less than the previous month. Libyan daily output fell by 150,000 barrels, while Nigeria and Kuwait increased slightly.

-Losses in the North African nation had limited effect because they were concentrated in the month's final days. Its production slumped by more than 500,000 barrels a day — or roughly 50 per cent — in the last week of August amid a feud between two rival governments over control of the central bank.

Also Read: Three Libyan oil fields receive instructions to resume production, engineers say

-Traders are also concerned that the cartel will gradually revive idle output in October, despite signs of faltering demand in key consumer China. Led by Saudi Arabia, OPEC and its allies have been withholding supplies since late 2022 to shore up prices.

-The group continues to face challenges ensuring members implement their share of supply curbs. While nations like Saudi Arabia, Algeria, and Kuwait abide by their quotas, Iraq hasn’t yet fully cut production despite repeated promises.

-According to Bloomberg, Baghdad pumped 4.32 million barrels daily in August, or 320,000 above its agreed limit. Along with fellow OPEC laggards Kazakhstan and Russia, Iraq has pledged additional cuts to compensate for the initial cheating. But none of the trio has yet stuck to its quota, let alone begun the work of compensation.