Oil posts monthly decline as demand worries offset Libya supply disruptions

By Myra P. Saefong and William Watts

Both Brent and WTI crude end lower for the week

Oil futures finished lower on Friday, posting losses for a second month in a row, with concerns over weaker demand offsetting support from a disruption of crude output in Libya that stemmed from a standoff over leadership of the country's central bank.

Price moves

West Texas Intermediate crude CL00 for October delivery CL.1 CLV24 fell $2.36, or 3.1%, to settle at $73.55 a barrel on the New York Mercantile Exchange. The front-month contract ended 1.7% lower for the week and marked a monthly loss of 5.6%, according to Dow Jones Market Data.October Brent crude BRNV24, the global benchmark, declined $1.14, or 1.4%, to $78.80 a barrel on ICE Futures Europe, settling 0.3% lower for the week and 2.4% lower for the month. The more actively traded November contract BRN00 BRNX24 lost $1.89, or 2.4%, at $76.93 a barrel.September gasoline RBU24 lost 1.6% to $2.21 a gallon, down 10.9% for the month, while September heating oil HOU24 shed 1.4% to $2.25 a gallon, losing 6.8% for the month. The September contracts expired at the end of the session. Natural gas for October delivery NGV24 settled at $2.13 per million British thermal units, down 0.5% for the session. Front-month prices rose 4.5% for the month.

Market drivers

"We continue to have questions about global demands, and on how much impact the shuttering of Libyan supplies will have," said Gary Cunningham, director of market research at Tradition Energy. For now, "we think global demands will weaken later in the year as air travel appears to be ticking lower and Asian transportation demands for diesel are also showing lower numbers."

Oil prices saw some strength on Thursday, due in part to a report from Reuters that Shell PLC (UK:SHEL) (SHEL) plans to reduce its oil-and-gas exploration and development workforce by 20%, said Cunningham. But unless "others [are] joining the chorus," especially OPEC+ - the Organization of the Petroleum Exporting Countries and its allies - "we are likely to have Brent looking up at $80 for a while," while a "home under $76" for WTI seems likely.

Read: Why Libya could bolster OPEC+ plans for oil production

A dispute between Libya's eastern leaders and western authorities over the nation's central bank has resulted in an oil blockade that has significantly curtailed crude flows.

Read: Libya's oil output 'cannot be easily replaced' during reported production halt, analysts warn

Five export terminals in the east, with a combined capacity of 800,000 barrels a day, have been closed as a result of the standoff, according to analysts at RBC Capital Markets. They noted that since 2011, Libya has seen extended disruptions of 1 million barrels a day when eastern leaders have used their control over oil facilities to press political and economic claims on the government in Tripoli.

Still, the effect on the market has been relatively muted so far. WTI and Brent remain on track to end August with monthly losses.

While the early August fears of an imminent U.S. recession have faded, weak data from China has reinforced concerns about demand from the world's top crude importer, analysts said.

China's continued struggle to accelerate growth, coupled with a weakening job market in the U.S. and manufacturing activity in the eurozone, have 'left investors and speculators bearish on oil demand in the coming months.'Craig Golden, Nepsis

Future expectations for demand have kept oil prices within a range this month, said Craig Golden, senior investment analyst and market strategist at Nepsis, a national financial advisor with strategic investments in oil.

China's continued struggle to accelerate growth, coupled with a weakening job market in the U.S. and manufacturing activity in the eurozone, have "left investors and speculators bearish on oil demand in the coming months," he said.

The oil market is "grappling with several questions that need to be answered," he said. Those include whether U.S. shale production will begin to slow and if that could offer a tailwind for higher oil prices. There's also uncertainty over whether Chinese demand will pick up or "continue to meander," how long OPEC+ will remain committed to production cuts, and whether Saudi Arabia, specifically, will be able to hold off production to support current prices, said Golden.

-Myra P. Saefong -William Watts

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08-30-24 1542ET

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