Libya Disruptions Continue

Energy

Oil came under pressure on Friday, with worries growing over what new COVID-19 related restrictions in parts of China mean for oil demand. The delayed weekly EIA report only added further pressure, showing that US crude oil inventories increased by 4.35MMbbls over the last week, while the market was expecting a draw. The build was driven largely by a fall in crude oil exports, which declined by 760Mbbls/d. Refiners increased their utilization rates by 0.5 percentage points, taking them to 82.5%, the highest we have seen since March. On the product side, gasoline stocks fell by 259Mbbls, thanks to a rebound in implied demand, whilst distillates fuel oil inventories increased by 457Mbbls.

Source: iStockphoto

Iraq has said that it will produce 3.6MMbbls/d of oil over January and February. If they achieve that, it will be well below their 3.86MMbbl/s production level under the OPEC+ deal. These deeper cuts are to compensate for the overproduction we saw from Iraq over much of last year. If Iraq manages to reduce output to these levels, it would be the lowest output we have seen from them since 2015. However, given Iraq’s record of falling short with production cuts, there is no guarantee that they will meet this target.

Finally, having fixed a leak along a pipeline to the Es Sider export terminal, Libya is seeing some more disruptions, with guards stopping exports from Es Sider, Ras Lanuf, and Hariga ports due to disputes about pay. Until recently, Libya has seen an exceptional recovery in oil production, hitting more than 1.2MMbbls/d in December, up from less than 100Mbbls/d in August.

Metals

The metals complex remained largely under pressure, with a strengthening USD and continued COVID-19 fears. Rising cases from some cities in China have led to increased restrictions, which is hurting risk sentiment. And with the Chinese New Year holidays scheduled next month, China will witness a seasonal fall in demand for metals, which may cap any significant upside in prices in the near term.

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