28 November 2013, News Wires – Brent futures held above $111 per barrel on Thursday on worries Opec member Libya isn’t anywhere close to ramping up output as winter oil demand increases, while a bigger-than-expected rise in US crude stock kept the gains in check.
Libya’s Prime Minister Ali Zeidan said his government will be unable to pay public salaries and may have to seek loans if armed militias blockading oilfields and ports continue to choke off crude shipments.
But a surge in US crude production to the highest since 1989 may mean the upside for oil is limited once demand eases after winter due to a weak global growth outlook, Reuters reported.
Brent crude gained 5 cents to $111.36 per barrel early on Thursday, extending gains after settling 43 cents higher. US oil fell 16 cents to $92.14, hovering near the lowest in almost six months. It touched a low of $91.77 on Wednesday, its weakest level since 3 June.
“The weather and supply issues are supporting oil at the moment,” Reuters quoted Barratt’s Bulletin chief executive Jonathan Barratt as saying in Sydney.
“But beyond that, we are seeing inventory levels are rising, the demand outlook is weak and there is a possibility of more supplies coming into the market.”
Zeidan’s warning and renewed armed clashes, including an attack on a centuries-old shrine near Tripoli, have added to a growing sense of chaos in Libya two years after the NATO-backed ouster of Muammar Gaddafi.
But Barratt expects the Libyan government to come to an agreement with the militias given that nearly all of the country’s revenue comes from oil exports. Once that happens, supplies will rise by about 1 million barrels per day.
In addition, Iranian supplies may increase if Tehran follows through on its commitments reached in the breakthrough deal with world powers over the weekend. That, and dwindling US demand for imported oil, may push prices lower in the next few months.
“That’s the next big question – how do you find a home for all the oil that US has and will stop importing,” said Barratt. “That’s the elephant in the room.”
Barratt sees an immediate support for US oil at $92.50 and prices falling to $90 if that level is breached. Over the next few months, there is a possibility that both the benchmarks head to around the $80 a barrel mark, he said.
Crude oil stocks last week rose almost 3 million barrels to 391 million barrels, their highest levels for November since records began in 1982.
The EIA also said crude oil output last week exceeded 8 million bpd for the first time since January 1989. Earlier this month, its data showed that crude production exceeded imports for the first time in nearly two decades.