Hard landing fears for the US economy cancel gains from the Libyan oil shutdown

Oil markets have failed to build sustained momentum over the past two weeks, with lingering fears of a hard landing for the US economy outweighing supply disruptions. Crude futures rose more than 3 percent on Monday after rival Libya’s eastern government said it was ending oil production and exports, adding to gains the previous week when Fed Chairman Jerome Powell signaled the start of tapering interest rates in September.

Unfortunately, oil prices fell, with Brent crude for October delivery trading at $79.23 a barrel in Wednesday’s session, down from Monday’s weekly peak of $81.47, while WTI it was quoted at $75.15/barrel after reaching $77.54 on Monday. further, Brent is spreading have expanded significantly; October-November Backwardation rose $0.51/bbl to $1.07/bbl at settlement on August 26, November-December Backwardation rose $0.43/bbl to $0.85/bbl, which in December 2024-December 2025, the return increased by $1.08/bbl to $4.13/bbl.

The oil crisis in Libya

Oil prices rose on Monday after Libya’s eastern government called force majeure on all oil production and exports, which could eliminate up to 1 million bpd of crude from the markets. Oil was already trading higher after Israel sent more than 100 warplanes on Sunday to take out thousands of Hezbollah rocket launchers. However, Libya’s development is far more significant for oil markets as it represents “real barrels losteffectively tightening the physical market for as long as the Libyan crisis lasts, UBS analyst Giovanni Staunovo told Bloomberg. In 2022, a deal between Prime Minister al-Dbeibah in Tripoli and warlord Khalifa Haftar in Benghazi reunited the central bank and put it (loosely) under Tripoli’s control, while a Haftar loyalist took control of the company state oil companies. Eastern and western factions have competed for access to state revenues, with eastern factions recently halting oil flows in response to Tripoli’s Presidency Council’s demand to oust CBL Governor Sadiq al-Kabir.

Periodic instability in Libya’s oil production has been a recurring feature since 2011’s First The Libyan civil war, commodities analysts at Standard Chartered estimate, has resulted in a loss of just over 4 billion barrels of production and cost the North African country $320 billion in lost revenue.

Last month saw some swings in oil prices but no sustained momentum, raising questions about the quality of the price discovery involved in the cycles. According to StanChart, both price cycles over the past month were primarily due to spillovers from interest rate markets and a seasonal dominance of algorithmic trading. However, aside from the Libyan oil shutdown, there have been no major changes in market fundamentals to justify the large swings in oil prices. According to experts, the negative positioning on oil relative to the neutral positioning on copper reflects heightened fears of a hard landing in the US economy, as well as a bearish outlook for 2025. The bearishness is hard to justify given that the cumulative decline in US crude Oil stocks for the past eight weeks they have been 34.7 million barrels, an average of 620 thousand barrels per day (kb/d).

Mixed bag for natural gas prices

Natural gas markets were mixed, with European gas markets upbeat while US markets continued to lag. European natural gas futures managed to hold steady near €40 per megawatt-hour due to supply concerns related to Norway’s annual maintenance and the conflict between Ukraine and Russia. The maintenance activity reduced Norwegian gas nominations by 10 million cubic meters per day, affecting major pipelines such as Franpipe, Emden and Dornum. However, Russian gas continues to flow to Europe and regional storage is at around 92% of capacity, more than two months ahead of the EU’s November target.

Instead, the US natural gas prices they weakened again, with first-month (September) Henry Hub falling below $2 per million British thermal units (mmBtu) for the first time in three to trade at $1.93/MMBtu in Wednesday’s session. However, the Henry Hub forward curve is in steep contango, with the December 2024 to February 2025 contracts all settling above $3.00/MMBtu, with inventories remaining relatively flat. U.S. gas prices have been further depressed over the past week by weather forecasts that imply a drop in cooling demand in key consuming regions over the next two weeks, along with a lack of significant hurricane activity near Texas offshore gas fields.

By Alex Kimani for Oilprice.com

More top reads from Oilprice.com