Oil News: Will Supply Disruptions in Libya and Iraq Propel Prices Higher Next Week?

Volatile Week Ends Lower Despite Supply Shocks

Light crude oil futures experienced a volatile week, ending 1.71% lower despite significant supply disruptions in key oil-producing regions. The market grappled with conflicting signals from supply constraints and demand concerns, leading to price fluctuations throughout the week.

Last week, light crude oil futures settled at $73.55, down $1.28 or -1.71%.

Supply Disruptions in Libya and Iraq

A major factor supporting oil prices was the ongoing production halt in Libya. Political disputes led to the closure of multiple export ports, taking more than half of the country’s output offline. Estimates suggest production losses could reach 900,000 to 1 million barrels per day (bpd), potentially lasting several weeks. This substantial reduction provided a key support level for oil prices.

Similarly, Iraq announced plans to reduce its oil output to between 3.85 million and 3.9 million bpd in September, following reports that the country had exceeded its OPEC+ quota. This anticipated decrease in Iraqi supply is expected to further tighten the market.

U.S. Economic Data and Fed Rate Expectations

U.S. economic data presented a mixed picture for oil demand. Consumer spending increased solidly in July, suggesting stronger economic footing early in the third quarter. This data dampened expectations of a significant interest rate cut from the Federal Reserve in September, potentially limiting economic stimulus that could boost oil demand.

OPEC+ Production Plans

OPEC+ is set to proceed with a planned oil output increase from October. The group considers the Libyan outages and pledged cuts by some members to compensate for overproduction as sufficient to counter sluggish demand. This news contributed to Friday’s price retreat.

Market Forecast: Mixed Outlook

The oil market enters the coming week with a mixed outlook, balancing supply constraints against demand uncertainties.

Supply-Side Factors

The ongoing production disruptions in Libya and Iraq are likely to continue supporting oil prices in the near term. If these issues persist or worsen, we could see further upward pressure on prices. However, OPEC+’s planned output increase in October may cap potential gains.

Demand Considerations

While recent U.S. economic data has been relatively strong, concerns about global oil demand persist, particularly regarding China’s economic slowdown. Traders will closely monitor upcoming economic indicators for signs of demand growth or contraction.

Oil prices are currently hovering around the critical 200-day moving average. A sustained break above this level could signal a longer-term bullish trend, while failure to hold above it might trigger a decline to key support levels.

In conclusion, while supply disruptions provide a floor for oil prices, demand uncertainties and potential OPEC+ output increases may limit upside potential. Traders should remain vigilant, watching for developments in Libya, Iraq, and global economic indicators that could sway the market in either direction.