Oil Up On Libya Shutdown As Analytical Rationale For a Bear Market Proven Wrong

Meanwhile, India contributes to the ineffectiveness of the Russia sanctions: File Image/Pixabay

An oil field shutdown in Libya underscored the severity of a globally under supplied market and on Monday caused another jump in crude prices, with Brent topping $113 per barrel for the first time since March.

Protests against Abdul Hamid Dbeibah, prime minister of Libya, effectively closed Sharara, the country's biggest oil field, as well as two of the country's ports; as a result, West Texas Intermediate settled up $1.26 to $108.21 per barrel, and Brent settled up $1.46 to $113.16.

Earlier in the session prices had fallen due to China's biggest self-imposed decline in consumer spending and unemployment rate since the pandemic began, via its zero-tolerance Covid lockdowns of several major cities.

As if to illustrate the schizophrenic crude trading patterns of late, analytical thought last week held that oil was firmly in bear territory, due to demand destruction fears; but on Monday, Brent's prompt spread - the difference between its two nearest contracts - surged to $1.15, up from 21 cents a week ago and a sure sign of bullish sentiment.

Meanwhile, as energy-dependent Europe struggles to end purchases of oil from Russia, the effectiveness of sanctions against the former Soviet Union for invading Ukraine seemed more questionable than ever on Monday, with reports that India, having bought up its discounted oil, is now setting its sights on Russian coal.

Vivek Dhar, director of mining and energy commodities research at the Commonwealth Bank of Australia, said in a note, "Markets suspect that India and China may boost coal imports from Russia, offsetting some of the impact of a formalized EU ban on Russian coal imports."

That presumable renders the effectiveness of the European embargo to mainly escalating already overinflated global oil prices: Pavel Molchanov, an analyst at Raymond James & Associates Inc., explained that "Realistically, it would not be viable to replace" all of the crude that would be disrupted from a European Union ban on Russian crude.

For the record, EU governments said last week the bloc's executive was drafting proposals to ban Russian crude, but diplomats said Germany was not actively supporting an immediate embargo.

As for what may be expected in crude trading in the days to come, Kazuhiko Saito, chief analyst at Fujitomi Securities Co Ltd., said, "The oil market will likely stay on a bullish trend this week with limited additional supply coming from major oil producers to offset a reduced flow from Russia."