Oil prices experienced a significant drop on Tuesday, driven primarily by mounting concerns over China's economic performance, which overshadowed the impact of recent disruptions in Libyan oil production. Brent crude futures slid by $1.66, or 2.1%, to $75.86 per barrel, while West Texas Intermediate (WTI) crude futures fell by $1.07, or 1.5%, to $72.48. The declines mark a reversal from earlier gains in 2024, with WTI effectively erasing nearly all its gains for the year.
The latest figures from China, the world's largest crude importer, have intensified worries about global oil demand. China's manufacturing sector contracted to a six-month low in August, according to recent data, and new export orders fell for the first time in eight months. The weak economic indicators contributed to the bearish sentiment in the oil market, overshadowing the support provided by ongoing supply disruptions in Libya.
Charalampos Pissouros, a senior investment analyst at brokerage XM, noted that the weaker-than-expected Chinese manufacturing Purchasing Managers' Index (PMI) "likely exacerbated concerns about the Chinese economy's performance." Despite the significant production halts in Libya, "the Libya and Middle East stories are keeping a floor below prices, leaving the door open to a further recovery in the foreseeable future."
In Libya, oil exports from major ports were halted on Monday due to a political standoff between rival factions over control of the central bank and oil revenues. The National Oil Corporation (NOC) declared force majeure on its El Feel oilfield as of September 2, leading to a drastic drop in production. NOC reported that production had plummeted to around 591,000 barrels per day (bpd) by late August, down from nearly 1.28 million bpd in mid-July.
Despite these disruptions, UBS analyst Giovanni Staunovo indicated that there is "limited upside support from large production disruptions in Libya" due to uncertainty over the duration of the outages. The global oil market's focus remains on the broader economic environment, particularly the potential for increased output from OPEC+.
OPEC+, the coalition of oil-producing countries, is set to boost production by 180,000 bpd starting in October. This planned increase comes amid ongoing concerns about global oil demand, particularly in light of the sluggish economic data from China. Analysts are watching closely to see how low prices can fall before OPEC+ intervenes. Panmure Liberum analyst Ashley Kelty pointed out that "most cartel members need prices above current levels to come close to balancing budgets."
Adding to market uncertainties, two oil tankers were attacked in the Red Sea off Yemen on Monday. While the attacks did not cause major damage, they underscore ongoing risks in the Middle East, which continue to support oil prices to some extent.
As oil prices continue to react to a complex mix of supply disruptions and economic indicators, the outlook remains uncertain. With the iPhone 16 series set for launch and geopolitical tensions in the Middle East persisting, the energy market faces a challenging landscape. The interaction between economic conditions in China and production strategies from OPEC+ will likely be pivotal in shaping future price movements.
