Oil prices dropped on Wednesday as the International Energy Agency’s (IEA) forecast of a market surplus in the first half of this year was enough to cancel out concerns about military disruptions that have slashed Libya’s crude output.
Brent crude LCOc1 was down 30 cents, or 0.5%, at $64.29 a barrel at 0731 GMT, after falling 0.3% on Tuesday. U.S. oil CLc1 fell 33 cents, or 0.6%, to $58.05 a barrel, having declined 0.3% the day before.
The head of the IEA, Fatih Birol, said he expects the market to be in surplus by a million barrels per day (bpd) in the first half of this year.
“I see an abundance of energy supply in terms of oil and gas,” Birol told the Reuters Global Markets Forum on Tuesday, while attending the World Economic Forum meeting in Davos.
“It’s the reason that recent incidents we have seen - with the Iranian general killed, Libya unrest - didn’t boost international oil prices,” Birol said, referring to the U.S. killing of an Iranian commander and retaliation by Tehran that sent prices briefly soaring earlier this month.
Libya’s National Oil Corp on Monday declared force majeure on the loading of oil from two major oil fields after the latest development in a long-running military conflict.
Unless oil facilities quickly return to operation Libya’s oil output will be reduced from about 1.2 million barrels per day (bpd) to just 72,000 bpd.
Meanwhile global financial markets have been destabilized by the emergence from China of a new strain of a coronavirus, with concern focused on the impact a pandemic might have on economic growth. The outbreak has stirred memories of the SARS epidemic of 2002-2003.
Should the new virus develop into SARS-like proportions, hitting travel and growth, demand for oil could fall by 260,000 bpd, Goldman Sachs said in a note.
“Demand concerns over a potential epidemic will counter concerns around supply disruptions in Libya, Iran and Iraq, driving spot price volatility in coming weeks,” Goldman said, although the “impact on oil fundamentals remains limited so far.”
Supply is still likely to rise, with U.S. crude production in large shale deposits expected to rise to record highs in February, although the pace of increase is likely to be the lowest in about year, the U.S. Energy Information Administration (EIA) said on Tuesday.
Inventories of crude oil in the U.S. are likely to have fallen for a second week last week, according to a Reuters poll, although gasoline stocks are forecast to have risen for an 11th week in a row.
The poll was carried out before data due this week from the American Petroleum Institute (API), an industry group, and the official figures from EIA.
The API is scheduled to release its data for the latest week at 4:30 p.m. EST (2130 GMT) on Wednesday, and the weekly EIA report is due at 11 a.m. on Thursday.