Libya Oil Disruptions

Energy

Oil has had a strong start to the day, with ICE Brent touching US$66/bbl in early morning trading, following reports that forces loyal to Commander Haftar in Libya blocked oil exports, as fighting in the country continues. The blockade has seen the National Oil Corporation (NOC) declare force majeure, and warn that production could fall to just 72Mbbls/d in the coming days once storage tanks are full. Prior to the blockade, Libya was producing around 1.2MMbbls/d. A prolonged disruption from Libya would be enough to swing the global oil market from surplus to deficit in 1Q20. While, if a disruption of this magnitude was to last through until 2Q20, it would be enough to bring the global market to balance over the second quarter.  Disruptions for the market do not stop there. In Iraq, OPEC’s second-largest producer, the 70Mbbls/d Al Ahdab oilfield was forced to shut, with security guards blocking access to the oilfield, as they seek permanent employment contracts. Meanwhile, there are reports that the 50Mbbls/d Badra oilfield is at risk of having to shut today as well.

Looking at the Commitment of Traders report, there was little change in speculative positioning in ICE Brent over the last reporting week. However, NYMEX WTI saw significant liquidation, with speculators selling 62,636 lots over the reporting week, to leave them with a net long of 225,794 lots as of the 14th January. Meanwhile looking at Henry Hub natural gas, speculators continued to increase their net short over the last reporting period, selling 19,528 lots, leaving them with a net short of 269,944 lots - a record net short. However, this position is likely to be even larger at the moment, with Henry Hub coming under renewed pressure more recently, which has seen prices fall below US$2/MMBtu. This weakness is really reflective of the state of the global gas market, where all regions have an abundant supply. In the US natural gas inventories stand at 3.04Tcf, which is 494Bcf above levels seen at the same stage last year, and 149Bcf above the 5-year average. Meanwhile, forecasts for warmer than usual weather in the US have done little to offer support to the US market.

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