Oil prices experienced a slight pullback on Tuesday, retreating from a recent surge triggered by a halt in Libyan production and escalating Middle East tensions. U.S. crude oil futures slipped below $77 per barrel, with West Texas Intermediate (WTI) trading at $76.99, marking a decline of 43 cents or 0.56%. This drop follows a dramatic increase in prices driven by supply disruptions from Libya and concerns over regional conflict.
Libya, a key oil producer with an output of approximately 1.2 million barrels per day, recently saw a significant portion of its production halted due to political strife. The country's production issues stem from a conflict between rival governments in Tripoli and Benghazi, with the latter's authorities announcing the suspension of oil exports amid disputes over central bank leadership.
Sara Vakhshouri, founder of SVB Energy International, noted in an interview with CNBC's "Capital Connection" that the market reaction had been somewhat exaggerated. "The recent price surge was a response to immediate supply disruptions, but expectations are for a gradual return of Libyan output rather than a complete cessation," Vakhshouri explained.
On the heels of this disruption, Brent crude futures were down 47 cents, or 0.58%, settling at $80.96 per barrel. The rebound in oil prices, which saw Brent and WTI rise more than 7% over the previous three sessions, was initially driven by fears of prolonged supply shortages and geopolitical risks. However, as the situation in Libya began to stabilize, the market's focus shifted back to broader supply and demand dynamics.
Goldman Sachs, reflecting on the recent developments, adjusted its forecast for Brent crude, reducing its price range to $70 to $85 per barrel. The investment bank anticipates that global benchmark prices will average $77 in 2025, down from a previous forecast of $82. This adjustment comes in light of softer demand projections, particularly from China, and robust U.S. production that has outpaced earlier expectations.
The market's short-term volatility was further influenced by geopolitical tensions, including an intensification of conflict between Israel and Hezbollah. Analysts at ANZ highlighted that "markets remain on edge" due to ongoing skirmishes, although the immediate risk of a broader regional conflict appears to have eased.
IG market strategist Yeap Jun Rong pointed out that the recent oil price fluctuations reflect broader market uncertainties. "The surge in oil prices was driven by immediate supply concerns, but with Libya's production issues expected to be resolved gradually, the market is recalibrating," Rong said.
Ole Hansen, head of commodity strategy at Saxo Bank, observed that while the surge in prices was significant, the market might face challenges in pushing higher without prolonged disruptions. "Without a continued Libyan supply disruption, oil prices may struggle to move much above the mid-$80s," Hansen noted.
In Libya, the El Feel oilfield and other major production sites, responsible for nearly all of the country's crude output, were affected by the recent halt. The lack of confirmation from Libya's internationally recognized government in Tripoli and the National Oil Corp (NOC) added to market uncertainty.
