Crude oil hits its lowest level of the year on speculation of a resumption of Libyan production

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Oil prices fell to their weakest levels this year following a report that Libya could soon restore full production, adding to fears that weak global demand will create an oversupply in the market.

Brent crude, the international benchmark, fell as much as 5 percent to $73.67 on Tuesday, its weakest level since December and the first time it has dipped below $75 since January. The US equivalent, WTI, fell 4.5% to $70.25.

The drop in prices came after Bloomberg reported that Sadiq al-Kabir, the governor of the central bank at the center of a dispute between two rival factions, said there were “strong” signs of a compromise.

Investors fear Libya, which last week shut down about 60 percent of its $1.2 million-a-day oil supply, could soon restore full output, adding to worries about weak demand from top importer China of oil in the world.

Crude oil prices have been volatile in recent weeks as investors weigh the impact of the tensions, which were expected to last for several months. Libya accounts for less than 1% of the world’s daily output.

The country’s eastern government, which is not recognized internationally, has halted much of the country’s production and exports, which analysts said was part of a widening power struggle between factions for the position of – Kabir. The central bank holds billions of dollars in oil revenue, which is Libya’s only source of income.

Abdul Hamid Dbeibeh, prime minister of the Tripoli government in the west, has sought to replace al-Kabir, who is backed by the eastern parliament and Khalifa Haftar, the warlord who controls eastern Libya.

Some traders and analysts speculated that there was enough global supply to make up the shortfall as demand from China was weaker than expected. But there was also speculation that the OPEC cartel would delay a plan to raise production in the fourth quarter.

The International Energy Agency predicted last month that growth in crude oil demand would moderate at the end of the US summer season. It said a contraction in China helped limit demand growth in the second quarter.

“Despite the fact that much of Libyan oil production is offline, oil prices capitulate as investors remain focused on the demand side of the equation on fears that China’s economic malaise is worsening,” said Ehsan Khoman, head of goods at MUFG.

However, prices were supported by speculation that OPEC+ producers could delay production increases that are due in the fourth quarter as cartel leader Saudi Arabia needs to finance its ambitious infrastructure projects.

“The market has been divided on whether the group of producers is ready to relaunch a battle for market share or whether it will maintain cohesion and remain cautious about increasing supply,” wrote Helima Croft, head of commodity research at RBC Capital Markets. in a note this week. “We’re still in the back camp.”