Morning Market Overview
Crude and products were little changed, edging off fresh five-month highs traded overnight as fighting in Libya escalates, threatening to disrupt oil exports from the North African nation and member of the Organization of the Petroleum Exporting Countries. Forces loyal to Khalifa Haftar, a rebel general allied with the Eastern government, bombed Tripoli’s only airport as it continues an assault on the capital controlled by the Government of National Accord and considered Libya’s legitimate government by the United Nations, the United States and European Union. Haftar has ignored calls to halt the offensive, with Libya seen descending into a full-blown civil war. Haftar’s forces control most of Libya including its oil infrastructure, yet Tripoli’s government is internationally recognized and the sole authority for the country’s oil sales.
The current escalation in fighting could halt exports, with OPEC reporting Libyan oil production at 906,000 bpd in February. Lost oil supply from Libya would add to declining exports from Venezuela due to U.S. sanctions levied against the Maduro government in January after Nicolas Maduro assumed a second term as president despite fraudulent elections.
The United States and more than 50 countries recognize Juan Guaido as Venezuela’s president. Venezuelan crude production has plunged under the Maduro regime due to mismanagement and corruption, while recent widespread power outages have further restricted output. Late last week, the United States sanctioned 34 vessels used by Venezuela’s state-owned oil company, PDVSA. Reuters reports India is holding off buying oil for May from Iran until it receives clarity from the United States on waivers. The United States reimposed numerous sanctions on Iran in May 2018 after withdrawing from the 2015 nuclear accord, with sanctions on Iran’s oil exports taking effect in early November.
The United States granted eight countries waivers including India, which was allowed to purchase 300,000 bpd of oil from Iran, roughly half of what it previously bought. The waivers expire in early May, and the United States has expressed a goal of reducing Iranian exports to zero. Three countries that were granted waivers in November, Japan, Italy and Greece, have ended their purchases of Iranian oil.
The three OPEC members are exempt from the OPEC+ production agreement which runs through the end of June. There’s speculation Saudi Arabia might boost output to offset lost Libyan exports, while reports suggest Russia is ready to pump more to cover the shortfall.
Charts show strength for West Texas Intermediate and Brent crude futures, which have settled above their 200-day moving averages. WTI flipped into backwardation Monday, a bullish market structure, while the calendar spreads for Brent are widening in a backwardated market.
Markets will be provided updated short-term projections for global oil supply and demand starting today with the Energy Information Administration, with OPEC and the International Energy Agency scheduled to publish their updated 2019 outlooks Wednesday and Thursday, respectively. OPEC will update March production data for its 14 members Wednesday.