Libyan oil production expected to restart soon amidst already saturated market

Oil prices

Oil has been one of the most volatile commodities for traders over the past year. Following a price-gouging spat between Russia and the Saudis as well as this coronavirus pandemic, prices ended up plummeting to negative territory for the first time in history. Since then, oil prices seem to have stabilized around the $40 per barrel price range. However, there have still seen some dramatic, one-day price swings over this past week. While supplies are already quite high, with demand being relatively low, it seems like even more oil is going to be flooding the already saturated energy market right now.

Over the weekend, the Wall Street Journal reported that Libya’s top oilfield would be restarting production once more. Shut down since the beginning of the year, the Sharara oilfield is expected to add an immediate 27,000 barrels per day in output effective almost immediately, and is expected to increase to around 300,000 barrels per day soon. Besides the additional oilfield, which is the largest in Libya, the country’s total oil output has already jumped from 100,000 to over 300,000 in just the past two weeks alone.

The main reason why the Sharara oilfield was shutdown was due to the ongoing conflicts between the Libyan central command as well as rebel forces in the region. Leaders from both parties agreed to resolve a dispute over how said oil revenue is distributed between the two groups.

This extra oil is expected to further inundate the global energy markets, something that simply isn’t needed right now. Ever since the coronavirus pandemic led to major lockdowns around the world, energy demand has plummeted. Travel and tourism became almost completely non-existent, and while this has somewhat improved in recent months, the situation is far from returning to normal. Overall, oil demand is already quite low, and this extra supply from Libya is the last thing the markets need right now.

While prices could very well fall in the coming weeks in reaction to this influx of fresh oil, it’s unlikely they will fall to negative territory seen earlier this year. OPEC went on to say last week that the worst was over for the oil markets and that the energy sector will only get better from here on out, albeit at a slow pace.

As of right now, global inventories are sitting at 220 million barrels more than the normal average, meaning that even if demand for oil picks up, there’s more than enough sitting around to make up for it. While the current market equilibrium seems to have stabilized at $40 per barrel or so, prices could easily end up falling an extra few dollars as Libyan oil returns back to the markets.

At its height, Libyan oil production reached as much as 1.3 million barrels per day before the standoff between the two groups. Now that things seem to be returning to normal, it’s possible that the rest of Libya’s oilfields could begin production in the future.

Prices for Brent Crude are currently trading at $42.4 per barrel, while West Texas Intermediate is trading around $40 per barrel.