Oil prices decline as worry about oversupply overshadows Middle East disruption - MarketWatch

Crude-oil prices finished lower on Tuesday as investor worries about rising global supplies and a potential slowdown in global economic growth overshadowed a supply disruption in the Middle East due to unrest in Libya and Iraq.

Crude markets had briefly punched higher in electronic trade after the largest oil field in Libya shut down production following an armed forces cut off a pipeline and blocked exports. Reuters reported that pipeline blockades in the east and west of the country have hindered oil production and forced output stoppages.

“While the 0.8 [million barrel per day] production cut recently imposed by Libyan National Army leader Khalifa Haftar caused an immediate bullish reaction in the market yesterday, plentiful stockpiles in the US and other regions render virtually no impact to supply on the global market,” said Christin Redmond, commodity analyst at Schneider Electric, in a daily note.

“Additionally, the US embassy in Libya has called for an immediate resumption of oil production, increasing pressure on Haftar’s forces,” she said.

West Texas Intermediate crude futures saw its most-active March contract US:CLF20  decline by 20 cents, or 0.3%, to settle at $58.38 a barrel on the New York Mercantile Exchange. The February contract CLG20, -0.50%, which expired at the end of the regular trading session, lost 20 cents, or 0.3%, to finish at $58.34 a barrel.

There was no regular trading or settlements for WTI on Monday in observance of the Martin Luther King Jr. holiday.

March Brent oil BRNH20, -0.11%, the international benchmark, lost 61 cents, or 0.9%, Tuesday to $64.59 a barrel on ICE Futures Europe.

Tuesday’s move comes after Brent last week saw a weekly loss of about 0.2%, while WTI saw a nearly 0.9% weekly skid.

Libya has been producing about 1.2 million barrels a day, according to reports, however, that is small compared with global output.

A rally in oil has faded “as investors started to factor in the reality of supply and demand,” wrote Naeem Aslam, chief market analyst at AvaTrade in a daily research note. “Libyan oil production makes a very small part of global oil supply, and right now, the issue is with demand rather than supply.”

Market participants have pointed to growing supplies from shale producers in the U.S. as one of the biggest headwinds to sustained crude gains.

In a monthly report issued Tuesday, the Energy Information Administration forecast a monthly rise in U.S. shale oil production of 22,000 barrels a day to 9.2 million barrels a day in February. Oil output from the Permian Basin is expected to see the biggest increase, but oil output from the Anadarko, Eagle Ford and Niobrara regions are expected to see monthly declines, the report said.

Baker Hughes BKR, -3.41%  reported Friday that the number of active U.S. oil rigs rose by 14 to 673 this week, marking the first rise in four weeks.

“There is simply too much global supply, and too little global demand for Middle East crude oil to rally the market like it is 1999,” wrote Robert Yawger, director energy at Mizuho Securities USA, in a Tuesday research note.

The International Monetary Fund said it expects world economic growth to rise to 3.3% this year, from 2.9% in 2019, but also warned that the global economy continues to face an array or risks, including the chance that trade tensions will re-escalate follow the interim U.S.-China trade deal signed last week, according to the Associated Press.

Separately, striking security guards forced the stoppage of work on an oil field in Iraq, according to reports.

Weekly data on U.S. petroleum supplies will be released a day later than usual because of Monday’s holiday. The American Petroleum Institute will release its report late Wednesday, with the EIA’s figures due out Thursday morning. IHS Markit expects the EIA to report a fall of 1.5 million barrels in U.S. crude supplies, covering the week ended Jan. 17. It also forecasts weekly supply increases of 2.8 million barrels for gasoline and 1.2 million barrels for distillates, which include heating oil.

Back on Nymex, February gasoline RBG20, -0.32%  fell by nearly 0.3% to $1.6365 a gallon and February heating oil HOG20, -1.57%  lost 1.6% to $1.8292 a gallon.

February natural gas NGG20, -4.79%  settled at $1.895 per million British thermal units, down 5.4%. The contract marked the lowest finish since March 2016, according to Dow Jones Market Data.

Read: Natural-gas futures drop to their lowest levels since 2016

“Mild weather outlooks continue to weigh on demand expectations” for natural gas, said Redmond. “However, production is showing signs of slowing already, with preliminary data indicating January production has declined ~0.5 [billion cubic feet per day] compared to December.”

Barbara Kollmeyer contributed to this article.

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