Oil prices moved higher overnight after two big crude production bases in Libya started shutting down as a result of the military blockade. The prices have retreated lower during the European and American session, however, tensions remain high.
Fundamental analysis: Prices higher on Libya supply disruption
A few hours before the Berlin Conference on Libya actually started, one of the sides in the Libyan civil war that controls the eastern part of the country started shutting down two major oilfields. The oil prices gapped higher on fears of supply disruption as Libya is Africa’s biggest oil producer.
However, bank analysts quickly dismissed those fears.
The closure of two big production bases risks to cut the national output to a much smaller amount than usual. The same military fraction already closed other oilfields, however, the biggest and the most critical one was shut down yesterday.
Still, analysts say that the market is oversupplied at the moment. Libya has been producing around 1.2 million barrels per day recently.
“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,” said Stephen Brennock of oil broker PVM.
“A prolonged disruption from Libya would be enough to swing the global oil market from surplus to deficit in 1Q20,” added ING analyst Warren Patterson.
Technical analysis: Initial move fades
Despite the fact that oil gapped up overnight, the price has already rotated lower to trade negative 0.2% on the day. The price is supported in $57s by the confluence of support in the context of two major moving averages – 100 and 200 – on a daily chart.
Given how oversaturated the oil market is, we may see a dipper pullback. In this case, the major weekly support is located at $55.44 where the 200-WMA currently trades. On the upside, the triangle resistance, that was broken when oil prices erupted higher on Iran tensions earlier in the month, is still expected to offer some resistance at $60.50. The 9-month high of $65.62 is the key weekly resistance.
Despite the renewed tensions in Libya and the shutting down of major oil fields, the oil market seems oversupplied which hinders the oil prices from trading higher. Given how shallow these attempts to move oil prices higher have been, we shouldn’t be surprised if the market moves lower in the coming days and weeks.