HOUSTON, TX – Oil has dropped the most it has in over a week with the resuming of Gulf of Mexico oil production following hurricane Delta, and Libya reopening one of the countries largest oil fields.
Futures in New York declined by almost 3 percent (2.9%) on Monday, falling to their lowest in a week and breaking a previous 100-day moving average, as a sign of additional selling pressure arise. Benchmark futures also settled just below both the 100-day and 200-day moving averages.
Following a string of supply disruptions that have supported prices subsided, Royal Dutch Shell Plc, BHP Group and Chevron Corp. say production at both of their Gulf of Mexico platforms has been resumed.
Earlier, Libya’s National Oil Corp. also lifted an emergency shutdown on the nation’s largest producing field, which will reach its daily capacity of almost 300,000 barrels in roughly 10 days, a person with current knowledge on the situation added.
While supply disruptions ease among the U.S. and Libya, the cancellation of a workers’ strike in Norway has reintroduced much needed output into a market already facing anemic demand due to the novel pandemic.
As U.K's Prime Minister Boris Johnson looks to tighten coronavirus restrictions across the United Kingdom as infection levels rise, Italy and the Netherlands consider taking in new measures in order to protect their citizens. At the same time, the Organization of Petroleum Exporting Countries and several of its allies are discussing whether to proceed with plans to restore additional output expected in January of 2021.
“They look at the balances as carefully as anybody else, and they’re looking at what the demand picture is,” says Andrew Lebow, a senior partner with the Commodity Research Group.
“It’s highly unlikely that they’re going to pursue a tapering strategy. If anything, they might talk about having to reduce production, rather than increase production.”
In many of the latest signs of oil refineries struggling to cope with staggering demand, Italy’s Sarroch refinery in Sardinia, which is also one of Europe’s largest and most complex refineries, will (effective immediately) operate at the bare minimum required rate of production. This move will most likely affect crude oil grades from Iraq and Libya, including Azeri Light and CPC from the Caspian, according to data compiled from tanker tracking and several port agent reports.
However, oil prices could potentially see some relief as refineries, which have been shut down up from Hurricane Laura in late August, prepare to restart normal production operations. Phillips 66 and Citgo Petroleum Corp., which previously postponed the resumption of their Lake Charles refineries due to Hurricane Delta, are currently in the process of preparing these sites for an upcoming restart.
Meanwhile, Total SE’s Port Arthur, Texas oil refinery is currently running production at extremely reduced rates after having to restart production units that went down when the site lost power during Hurricane Delta on Friday.
Additionally, many 'market watchers' are eyeing the upcoming U.S. election in November to see what scenarios analysts consider, that could potentially effect industry oil prices.
In the event of an entire Democratic sweep of the White House and Congress, a potential U.S. return to the Iran nuclear agreement could lead to an increase of 500,000-barrel-a-day in Iranian production output by the third quarter of 2021, a JPMorgan Chase & Co. analysts said in a report on Monday.
However, an additional supply with that size would likely be offset by demand, which could indirectly cause crude prices to rise by as much as 15% on dollar weakness and fiscal stimulus under what has been labeled a “Blue Wave” scenario, the report states.