Oil prices fell sharply on Wednesday on news that Libya was suddenly set to restore hundreds of thousands of barrels per day, and the U.S. struck a softer line on Iran sanctions.
Brent sank more than 6 percent during midday trading on Wednesday, as Libya’s National Oil Corp. (NOC) said that it would lift the force majeure on several major export terminals and resume shipments of oil.
The standoff with General Khalid Haftar appeared to be on its way to some sort of resolution, with the militia handing the ports back over to the internationally-recognized NOC in Tripoli. As is always the case with Libya, the situation is fluid, and any return of production does not come with a guarantee that it will be sustained.
But for now, some 700,000 bpd could swiftly come back online. The outage in Libya had helped drive up oil prices over the past few weeks, fueling speculation that Saudi Arabia would need to burn through much of its spare capacity in order to keep the market well-supplied. The timing was also crucial: Libya’s outage was unexpected, and it came just as Canada temporarily lost 350,000 bpd and the expected interruptions from Iran were revised higher due to a hardline from the U.S. on sanctions.
“The lifting of force majeure at all the Libyan ports will certainly come as relief from a supply perspective, but it remains to be seen how quickly exports can return to normal,” Harry Tchilinguirian, head of oil strategy at BNP Paribas, told Reuters Global Oil Forum.
Another factor pushing down oil prices midweek were the comments from U.S. Secretary of State Mike Pompeo, who seemed to soften America’s position as it relates to how severely it would treat countries buying Iranian oil.
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