Oil slips amid expectations of surplus supply

London — Oil prices fell on Wednesday as an International Energy Agency (IEA) forecast of a market surplus in the first half of 2020 outweighed the concern about disruptions that have slashed Libya’s crude output.

Brent crude was down 43c, or 0.7%, at $64.16 a barrel at 9.41am GMT. West Texas Intermediate (WTI) also fell 43c to $57.95 a barrel, having declined 0.3% the day before.

The head of the IEA, Fatih Birol, said he expects the market to be in surplus by 1-million barrels a day in the first half of this year.

“I see an abundance of energy supply in terms of oil and gas,” Birol told the Reuters Global Markets Forum on Tuesday, while attending the World Economic Forum (WEF) meeting in Davos.

“It’s the reason that recent incidents we have seen — with the Iranian general killed, Libya unrest — didn’t boost international oil prices,” Birol said, referring to the US killing of an Iranian commander and retaliation by Tehran that boosted prices briefly earlier in January.

Libya’s National Oil Corp on Monday declared force majeure on the loading of oil from two major oilfields after the latest development in a long-running military conflict.

Unless oil facilities quickly return to operation, Libya’s oil output will be reduced by about 72,000 barrels a day (bbl/day) from about 1.2-million barrels a day.

Financial markets are also watching the emergence from China of a new strain of a coronavirus and the possible effect a pandemic might have on global economic growth.

Should the new virus develop dramatically and hit travel and growth, demand for oil could fall by 260,000bbl/day, Goldman Sachs said in a note.

“Demand concerns over a potential epidemic will counter concerns around supply disruptions in Libya, Iran and Iraq, driving spot price volatility in coming weeks,” Goldman said, although the “impact on oil fundamentals remains limited so far”.

Supply is still likely to rise, with US crude production in large shale deposits expected to rise to record highs in February, although the pace of increase is likely to be the lowest in about year, the US Energy Information Administration (EIA) said on Tuesday.

Inventories of crude oil in the US are likely to have fallen for a second week last week, according to a Reuters poll, although petrol stocks are forecast to have risen for an 11th week in a row.

Reuters