Oil extends sharp drop on supply outlook

September 26, 2024 (MLN): Oil extended its biggest daily drop in more than two weeks as Libya’s two rival legislative bodies reached an agreement to appoint new management for the OPEC member’s central bank, opening the way to the return of some crude production.

Brent crude traded below $73 a barrel after slumping 2.3% on Wednesday.

While West Texas Intermediate crude (WTI) was at $69.07 per barrel.

Representatives from Libya’s rival eastern and western administrations “initialed an agreement” on steps for the bank’s board, with a signing ceremony to take place on Thursday, Bloomberg reported.

Moreover, a report from Financial Times showed Saudi Arabia is ready to abandon its unofficial oil price target of $100 a barrel as the kingdom prepares to boost output to regain market share, the Financial Times reported, citing people familiar. Meanwhile, a stronger dollar also weighed on commodities such as oil priced in the currency — with a Bloomberg gauge of the greenback rising by the most in three months on Wednesday as risk appetite abated in wider markets.

The potential revival in Libyan and Saudi production comes as crude is set to close its worst quarter this year, hurt by the prospect of additional supply from OPEC+ and China’s dour economic outlook.

Even so, oil traders have this week shrugged off initial euphoria over Beijing’s announcement of a slew of stimulus measures due to their unclear impact on demand in the biggest importer, as well as data that showed higher consumption in the US.

“In the medium term, we are still going to be in a trading range of $70 to $90 a barrel,” said Stefano Grasso, senior portfolio manager at Singapore-based fund 8vantedge Pte. “If the stimulus is the missing piece of the puzzle for the Chinese recovery, we may see commodities test new highs.”

As part of the support, China is considering injecting as much as 1 trillion yuan ($142 billion) of capital into its biggest state banks to increase their capacity to support the economy, Bloomberg quoted people familiar with the matter as saying.

Such a move would be the first time since the global financial crisis in 2008 that Beijing has injected capital into its largest lenders.

US commercial oil inventories shrank by 4.5 million barrels last week, taking levels to the lowest since April 2022, data released on Wednesday showed. Stockpiles of gasoline and distillates, which includes diesel, also fell.

Meanwhile, the US, European Union, and major powers in the Middle East including Saudi Arabia and Qatar have proposed a three-week cease-fire between Israel and Hezbollah in Lebanon, part of a bid to clear the way for negotiations and avert an all-out war in the region.

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