Oil Futures Gain on Libyan Outage, Likely Strike in Norway


Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange are higher on a contract basis in early trading on Friday, the first day of the third quarter, after Libya's National Oil Corporation expanded a force majeure to two export terminals and an oil field while Norwegian oil workers are set to go on strike July 5th.

Political tensions in Libya have led to additional outages of crude oil and natural gas as adversaries compete to lead the north African country, with NOC declaring force majeure on the Asidra and Ras Lanuf terminals along the Mediterranean Sea and at the Al-Feel oil field. NOC said force majeure continues at the Brega and Zueitina terminals, with the latest outages leading to a production decline of 865,000 bpd, which compares with a production rate of 1.069 million bpd in March -- the most recent month with output above 1 million bpd. Oil exports that have ranged between 365,000 and 409,000 bpd are set to decline further.

The expanded force majeure follows the end of a 72-hour deadline by NOC demanding hard currency from Libya's central bank and Ministry of Finance to maintain operations.

"[I]t has become impossible to feed the power stations of Zuetina, North Benghazi and Sarir with their needs of natural gas, due to the connection between crude oil production and gas from the fields of the Waha and Mellitah companies, leading to a shortage of natural gas supply to the coastal pipeline," said NOC.

NOC reported a 90 million cubic feet per day loss of natural gas production at the Fareg field and 130 MMcf/d loss at the Abu-Attifel field.

In Europe, Reuters reports 74 offshore oil workers in Norway at Equinor's Gudrun, Oseberg South and Oseberg East platforms would go on strike July 5, citing a statement from the Lederne trade union on June 30. The strike would shut in 83,000 bpd of oil production, about 4% of Norway's output, with Lederne noting the strike would not affect natural gas production.

The latest threats to global oil production come on the heels of OPEC+ on Thursday agreeing to a 648,000-production increase in August, which matches the increase for July, and fully unwinds production cuts of 9.7 million bpd agreed to on April 12, 2020, in the face of a global pandemic and lockdowns. Yet, OPEC+ has failed to meet its quotas for months, missing May's production quota of 42.126 million bpd by 2.8 million bpd according to industry estimates.

The bullish developments are countered by slowing economic growth and inflation pressures in the United States and Europe, where some countries are experiencing double-digit inflation amid the war in Ukraine that has led to a critical shortage of natural gas and disruption to global food supply. An aggressive 75-basis point hike in the federal funds rate by the Federal Reserve in the United States in mid-June that is expected to be followed by additional sharp rate hikes has coincided with a slowdown in U.S. manufacturing and more recently a decline in consumer spending, with consumer sentiment at a historic record low.

Institute of Supply Management will release its manufacturing index for the United States for June this morning, which is expected to have declined from 56.1 in May to 55. While readings above 50 indicate growth, Federal Reserve Banks of Dallas, Kansas City and Richmond have reported slowing manufacturing activity for their districts and a worsening outlook. The Richmond Federal Reserve Bank in their CFO Survey this week said optimism for the U.S. economy deteriorated in the second quarter.

Atlanta Federal Reserve Bank's GDPNow tracker on Thursday suggested the U.S. economy is in recession, showing a 1% contraction for the second quarter. This follows this week's third reading for first quarter U.S. gross domestic product by the Bureau of Economic Analysis which revised down its estimate to a 1.6% contraction. Should the Atlanta Fed's tracker prove accurate, the U.S. economy is in recession, which is defined by two consecutive quarters with negative GDP.

Ahead of 8 AM ET, NYMEX August West Texas Intermediate futures were up nearly $3 at $108.76 following Thursday's $4 loss, while September Brent crude is more than $3 higher near $112.15, however, has gapped down $1.94 on the spot continuous chart.

NYMEX August RBOB futures are up a little more than 6cts near $3.5975 gallon after trading at a fresh seven-week low on the spot continuous chart at $3.5075 gallon overnight. August ULSD futures were up more than 14cts near $3.9730 gallon after trading at a $3.8136 fresh five-week low on the spot continuous chart overnight.

Brian L. Milne can be reached at brian.milne@dtn.com