However, the majority view is prices may be range-bound for 2020: File Image/PixaBay
The announcement on Monday of a force majeure in Libya was enough in the tumultuous world of crude trading to cause oil prices to rise to their highest level in over a week - although it's unclear how long the gains will be sustained.
Brent settled up 35 cents at $65.20 per barrel, having earlier touched $66 per barrel (its highest since January 9), while West Texas Intermediate settled up 12 cents at $58.66 per barrel, after rising to $59.73 (the highest since January 10).
The gains came on the heels of the National Oil Corporation stating that on Sunday two major oilfields in southwest Libya began shutting down after forces loyal to Khalifa Haftar closed a pipeline, potentially cutting national output to a fraction of its normal level.
Stephen Brennock, oil analyst, PVM Oil Associates
The bullish price impact may prove to be fleeting
NOC declared force majeure on crude loadings from the Sharara and El Feel oilfields, and it is said the closures risk taking almost all of Libya's output offline.
It was widely conceded that the disruptions are probably short lived and will be offset by producers in other countries: Stephen Brennock, oil analyst at PVM Oil Associates, remarked, “The oil market remains well supplied with ample stocks and a healthy spare capacity cushion; in other words, the bullish price impact may prove to be fleeting.”
However, not everyone in the analytical community downplayed the potential effect of the Libya shortages: Warren Patterson, analyst and ING, argued that “A prolonged disruption from Libya would be enough to swing the global oil market from surplus to deficit” in the first quarter of 2020.
Meanwhile, John Kemp, commodities analyst for Reuters, suspected that oil may be due for a correction: he based this on the fact that at their recent peak on January 7, bullish petroleum positions outnumbered bearish ones by almost 7:1, up from less than 3:1 in the middle of October, largely on hopes for an economic recovery and slower oil output growth.
He wrote, "expectations of a rise in oil prices and the accumulation of positions may have outrun the actual improvement in fundamentals, prompting a correction as former bulls realize some profits."
Kemp added that U.S. shale production "is proving more resilient than many analysts were expecting in the final few months of 2019, which is now tempering some of the optimism about a big rise in oil prices this year."
For his part, Sushant Gupta, refining and oils market manager at Wood Mackenzie, told media that the Organization of the Petroleum Exporting Countries (OPEC) is aware of oversupply in the oil market and will continue its output cuts for the rest of 2020: “They will have to manage that oversupply somehow, by either higher compliance or even deeper cuts for [a] longer time.”