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Oil Rally Stalls as Libya Production Resumes -- 2nd Update

3 Apr 2017 10:04 am
By Sarah McFarlane and Jenny W. Hsu 

Crude-oil futures edged lower on Monday, after the resolution of output disruptions in Libya brought the recent rally in prices to a halt.

Brent crude, the global oil benchmark, eased 0.2% to $53.40 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.1% at $50.55 a barrel.

Oil prices logged their strongest weekly gains after local militia in Libya cut oil output by around one-third around a week ago, but officials said production had restarted on Monday.

"Libya had managed to resurrect its production to 700,000 barrels a day. The national oil company was looking to push that to 1.1 million barrels a day by August, but unfortunately you will have these stoppages in Libya," said Harry Tchilinguirian, head of commodity strategy at BNP Paribas SA. "The good news is they tend to be a lot shorter."

The gains last week were also supported by increasing optimism that major producers will keep output capped in the second half of the year.

The bullish sentiment is also driven by views that despite rebounding U.S. production, output growth there isn't fast enough to offset the cuts being made by the Organization of the Petroleum Exporting Countries and others.

OPEC and powerhouse producers including Russia late last year agreed to pare their output by 1.8 million barrels a day for the first six months of 2017, with the aim of reducing global inventories to five-year averages. So far, OPEC's own data indicate a 94% compliance rate with the output cut agreement, but global inventories aren't falling as fast as was hoped.

"The front and center question for the oil markets right now is whether or not OPEC and non-OPEC producers extend their production cuts," said Mr. Tchilinguirian, adding that a failure to extend would be "dire" for oil prices.

The cartel will meet on May. 25 and review the deal.

Some analysts say a closer examination of the deal shows a bumpy road ahead because producers might be tempted to turn their back on it and prices that remain nearly double last year's lows.

"It is our base case that cuts will get extended," said Scott Darling, head of regional oil & gas for Asia-Pacific at J.P. Morgan. "However, there are clear risks for intra-OPEC tension [with] respect to the fact that the Saudis haven't cut back their exports." While the kingdom's production has decreased, domestic crude demand from power generation has fallen due to ample supply of natural gas.

"As Saudis crude exports have remained relatively the same year-over-year, that could be an issue for some of the OPEC members," Mr. Darling said, adding that could prompt the producers to re-engage in a battle for market share.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--fell 0.1% to $1.70 a gallon. ICE gas oil changed hands at $472.50 a metric ton, up $2.75 from the previous settlement.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

April 03, 2017 06:04 ET (10:04 GMT)

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