Prices fell in spite of the fact that there was upbeat economic data from Asia that showed that there could be strong energy demand again. Benchmark Brent LCOM7 futures for June delivery went down 41 cents or 0.8 percent to $53.12 a barrel. However, this was up 29 cents from Friday when May was still the front-month. U.S. West Texas Intermediate (WTI) declined 36 cents or 0.7 percent to $50.24 per barrel.Traders noted that both futures retreated in price after they failed to rise much above their 100-day moving average a techincal resistance level.
The Sharara field in Libya was producing 120,000 barrels a day by Monday. It had been producing about 220,000 barrels a day before it was shut down in a wage dispute March 27. Oliver Jakob, managing director of PetroMatrix said that the main development over the weekend that sent oil lower was the restart of the Sharara field. He said that uncertainty about Libyan production added volatility to oil prices which could cause them to move in either direction. However, energy services firm Baker Hughes pointed out that the US rig count rose last week. The first quarter was the strongest for rig additions since the middle of 2011.
The dip may be temporary, as manufacturing data from much of Asia for March showed solid growth. Data also showed that China’s factories production expanded for the ninth month in a row. Tim Evans, of Citi Futures claimed in a note: “The global economy remains on track for continuing growth in 2017, a support for the demand side of the petroleum market.” However, investors are cautious and hedge funds and money managers have been cutting net long positions according to recent data. Last week, oil prices had rallied for 3 days, when Libyan output was reduced and there were expectations that OPEC countries and others would extend their production cuts beyond June.
Total Libyan production is said to be now 660,000 barrels a day. General Mohammad Barkindo, the OPEC Secretary-General said that he was cautiously optimistic that the oil market was already rebalancing. OPEC is committed to draining off swollen inventories before the group meets on May 25 in VIenna. Kuwait and other producers have supported the extension of the cuts to output for another six months after the cuts that began in January. The cuts have been somewhat offsets by a surge in U.S. supply and production, a trend that may continue.
Gene McGillian, who manages market research for Tradition Energy said: “The rebound of Libyan production stalled the rally. We were rallying on the signs that the OPEC production agreement will be extended.” When the Shalala field stopped production Libyan output dropped by about 100,000 barrels a day. Both Libya and Nigeria are exempt from production cuts. American oil production expanded for a sixth week in a row to 9.15 million barrels a day the highest level it has been since February 2016 according to Energy Information Administration data.
