Crudes Soften With US Recession, Libya Supply in Focus

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Paring early morning advances, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange slipped in afternoon trade Monday as investors assessed risks of a potential recession in the United States ahead of the release of the consumer price index for May against supply disruption in Russia and Libya that could tip global oil markets further into deficit.

Some 250,000 barrels per day (bpd) in Libya's oil production remain shut-in following last week's protests that disrupted operations at the country's largest oi field -- El Sharara with daily capacity of 300,000 barrels (bbl). Libya's National Oil Company said on Monday the oilfield has been partially restarted despite the ongoing threats of violence against its employees.

El Sharara was closed in the middle of April after a blockade from protesters demanded a transfer of powers from Prime Minister Abdul Hamid Dbeibah, who has been refusing to step down, for newly sworn-in eastern Prime Minister Fathi Bashaga. Disputes over the distribution of oil revenues have also led to blockades at several Libyan oilfields, including Sharara. In April, Libya loaded just 819,000 bpd of crude from its ports, down from nearly 1 million in March and the lowest volume since October 2020, according to the tanker-tracking data analyzed by Bloomberg.

The disruption in Libya coincides with re-opening of China's economy after months-long lockdown wiped off a large chunk of Asia's oil demand over March-May period. Asian oil demand is now forecast to strengthen as China cautiously emerges from the virus restrictions, with most long-term customers in Asia are expected to take their full contracted supply this summer. According to the wire services, some Asian buyers are planning to seek more crude from Saudi Arabia, even after the world's biggest exporter raised prices by more than expected for the region.

Saudi state-owned oil producer Saudi Aramco raised its official selling prices of Arab light crude for Asian customers by $2.10 bbl in July compared with market expectations for a $1.50 bbl increase. These changes mean that Asian consumers will pay a $6.50 bbl premium for Aramco's crude oil over the average of the Oman and Dubai benchmarks.

Saudi Aramco also hiked its prices for European and Mediterranean buyers, raising OSPs by $2.20 bbl and $2 bbl, respectively. In northern Europe and the Mediterranean, refiners will now pay a $4.30 and $3.90 premium bbl compared with the ICE Brent oil benchmark. Interestingly, Aramco left OSPs for U.S. refiners unchanged at premiums in the range of $7 bbl and $4.50 bbl.

In financial markets, stocks on Wall Street moved slightly lower Monday as investors fretted over forecasts of a looming recession in the United States with inflation at four-decade high and economy seen slowing heading into the summer months. The Dow Jones Industrial Average finished little changed on a session after rallying more than 300 points earlier in the morning, but the market gave up some of its gains as the day progressed and the U.S. Dollar Index pushed above 102, up by 0.24% against the basket of foreign currencies. Goldman Sachs economists said this morning that despite all the risks, the U.S. economy is still on a narrow path to a soft landing as solid manufacturing and jobs data suggest the Federal Reserve may be able to pull off its aggressive interest rate hike plan without tipping the country into recession. While the "deterioration" in indicators like the first quarter's gross domestic product which contracted by 1.4% "suggests that near-term recession risk has increased in a mechanical sense," other activity measures "imply that output is still expanding," said the Goldman Sachs note. According to Atlanta's Federal Reserve GDP Now model, U.S. second quarter GDP growth stands at 1.3% as of June 1, down from 1.9% on May 27.

At settlement, NYMEX West Texas Intermediate for July delivery slipped $0.37 to $118.11 bbl, with losses accelerating post-settlement, while international crude benchmark Brent contract for August fell to $119.51 bbl. NYMEX RBOB July contract declined 5.92 cents to $4.1930 gallon and ULSD July futures gained 7.98 cents to $4.3601 a gallon.

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

Liubov Georges