Oil heading for biggest weekly loss in more than a month amid demand woes

Libya's production is growing following the end of a political deadlock

A drilling rig in the Pacific. A weakened crude demand outlook has prompted a hefty weekly loss in oil prices. EPA

Oil prices are headed for their biggest weekly loss in more than a month on a weakening crude demand outlook and reduced possibility of supply disruption in the Middle East.

Brent, the benchmark for two thirds of the world's oil, was trading 2.27 per cent higher at $72.77 a barrel at 7.44pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 2.42 per cent at $68.96 a barrel.

“Tensions are persisting in the Middle East and the humanitarian toll is climbing,” said Aditya Saraswat, Rystad Energy’s Middle East research director, in a research note on Friday. “Energy market fundamentals have been largely unaffected to date but this could change at a moment’s notice."

No attack on Iran's infrastructure

Oil prices plunged nearly 5 per cent on Tuesday after reports that Israeli Prime Minister Benjamin Netanyahu had told the US his military would not be attacking nuclear or oil facilities in Iran.

A large-scale regional conflict between Iran and Israel could significantly hinder gas exports and delay oil development projects, while attacks on key Iranian oil infrastructure would threaten nearly 1.4 million barrels per day of exports, Mr Saraswat said.

Meanwhile, Libyan oil exports have increased since the resolution of a political stalemate last month between the country's rival governments over the appointment of a central bank governor.

This dispute, which began in late August, resulted in the closure of the country’s major oilfields, with production dropping by more than half.

The National Oil Corporation (NOC) lifted force majeure at all oilfields and terminals on October 3, a few days after the eastern-based parliament approved the nomination of Naji Mohamed Issa Belqasem as the new governor of the country's central bank.

Consultancy FGE said in a research note that Libyan oil production has continued to increase, with October exports now estimated at 888,000 bpd. The country typically produces 1.2 million bpd of crude, of which about 1 million bpd is exported.

This week, the International Energy Agency said it expects a “sizeable” oil supply surplus in 2025 in the absence of major disruption.

“Heightened oil supply security concerns are set against a backdrop of a global market that – as we have been highlighting for some time – looks adequately supplied,” the agency said.

China's fiscal stimulus

Meanwhile, Opec reduced its forecast for global oil demand growth in 2024 and 2025 for the third consecutive month, but is optimistic that China’s stimulus plan to revive its economy will support crude consumption.

China's crude demand has been showing signs of decline, which analysts attribute to both a slowing economy and a long-term shift towards the use of electric vehicles. The country has since last year announced several stimulus measures to address slowing manufacturing, a property market downturn and rising unemployment.

Last month, China’s central bank unveiled its largest economic stimulus package since the Covid-19 pandemic, including a reduction in its key short-term interest rate, a lowering of mortgage rates for existing housing loans and a one trillion yuan ($142.86 billion) liquidity injection.

The country's Finance Ministry held a briefing last Saturday but did not specify the size of the coming fiscal stimulus.

"Commodities are struggling to find direction after China’s briefing on October 12 was long on words but short of a big number for fiscal stimulus," said Ehsan Khoman, head of commodities, ESG and emerging markets at MUFG.

Although the market is awaiting more details from the Finance Ministry and guidance from the Standing Committee of the National People's Congress (NPC) on potential government support measures, the impact on the commodities market has been "nuanced", he added.