Oil Futures Slip as China's Slowdown Offsets Libyan Outage

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Reversing overnight gains, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange slipped in early trade Monday as investors balanced a sharp decline in China's consumption tied to COVID-19 shutdowns of major cities against another disruption of Libyan oil production after violent protests shut down operations at the north African nation's largest oilfields.

Libya's National Oil Corporation on Sunday declared force majeure on oil exports from the El-Feel oilfield in the country's southwest, affecting 90,000 barrels (bbl) in daily output. In a statement, the company said oil production was halted until further notice after a group of armed civilians entered the facility and halted operations.

Tribal leaders in southern Libya earlier announced they were halting production from the oilfield until Prime Minister Abdul Hamid Dbeibeh hands over power to the newly appointed government of Fathi Bashagha. They also called for the sacking of Mustafa Sanalla, the head of the NOC, and for the appointment of a new board for the company.

Political turmoil in Libya prompted a 370,000 barrels per day (bpd) decline in March oil production, according to secondary sources from Organization of the Petroleum Exporting Countries, with supplies likely to take a further hit in April. NOC formally suspended loadings from the eastern port of Zueitina and said it was the "start of a painful wave of closures." The NOC has also declared force majeure -- a clause in contracts allowing exports to be stopped -- from Mellitah, a western port fed by Sharara and El Feel.

Offsetting bullish headlines, economic data out of Asia's largest economy, China, showed sharp contraction in retail sales and industrial production last month after health authorities shut down entire cities and regions in some instances to slow the spread of COVID-19. China's retail sales, a main gauge of consumption, fell 3.5% year-on-year in March, the first contraction since August 2020.

An unexpected outbreak of omicron cases has thrown several domestic cities into short-term disarray, including the country's financial hub Shanghai in eastern China and heavy manufacturing center, Jilin, in northeastern China. The Shanghai lockdown is particularly concerning as the city acts as financial hub of China's giant $18 trillion economy. Coronavirus infections have kept growing in China with a total caseload that has now exceeded 200,000 during the latest omicron outbreak, making Shanghai the worst hit city in China's mainland since 2020.

China's economy still managed to grow in the first quarter, even as lockdowns closed factories and kept tens of millions confined to their homes in March, according to official data released over the weekend. China's gross domestic product expanded by an annual 4.8% in the first quarter, China's National Bureau of Statistics said Monday, a faster pace than the 4% expansion recorded in the final three months of 2021 and the 4.6% forecasted by economists.

Domestically, retail sales rose for the third consecutive month in March even as consumers confronted the highest inflation in four decades and absorbed record-high gasoline prices. Retail and restaurant spending rose 0.5% last month compared with gains of 0.8% in February and 3.8% at the start of the year, according to data released this morning by the Department of Commerce.

Last month's gain was mostly led by gasoline sales that increased 8.9% after Russia's invasion of Ukraine triggered higher oil and gasoline prices. Since then, consumer expectations for year-ahead gasoline prices moderated from an expected 49.6 cents increase from current prices reported in March to just 0.4 cent higher anticipated in early April. Survey conducted by University of Michigan showed that the shift in gasoline price expectations may be partly due to the Biden administration's announced release of strategic oil reserves and the relaxing of some seasonal regulations.

In early trading, NYMEX May West Texas Intermediate were little changed near $107 bbl and ICE June Brent contract edged higher to $112 bbl. NYMEX May RBOB futures were down 2.25 cents to $3.3589 gallon and May ULSD contract fell 4.85 cents to near $3.8065 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges