Oil supply cuts in Iraq and Libya nudge prices higher

Saket Sundria and Alex Longley January 25, 2021

(Bloomberg) --Oil in New York inched higher with investors assessing the impact of supply curbs from Iraq and Libya on the near-term outlook.

Iraq pledged to cut output in January and February after pumping more than its OPEC+ quota last year, and Libyan guards halted some crude exports after a pay dispute. Crude was also buoyed by a renewed climb in global equity markets as investors focused on the prospect of additional stimulus.

Oil’s rally has stalled over the past week and a half as a resurgence of the virus in China spurred localized lockdowns, while restrictions remained in place in many European countries. Iraq, meanwhile, will pump 3.6 million barrels a day in January and February, the lowest level since early 2015. The move follows a plan for sharp unilateral output cuts by Saudi Arabia next month as OPEC+ keeps a lid on output.

“The implementation of the compensatory cuts is likely to boost confidence in the agreement signed by OPEC and its allies,” said Eugen Weinberg, analyst at Commerzbank AG. “The supply deficit could therefore turn out to be somewhat bigger in the first quarter.”

Prices:

West Texas Intermediate rose 44 cents to $52.71 a barrel at 10:50 a.m. London time
Brent for March settlement added 0.7% to $55.80

Brent’s prompt timespread was 20 cents a barrel in backwardation early Monday -- a bullish market structure where near-dated contracts are more expensive than later-dates ones -- the most since March.

The world economy is facing a tougher start to 2021 than expected as Covid-19 infections surge and as it takes time to roll out vaccinations. Global growth is still on course to rebound quickly from the recession of last year, but it may take longer to ignite and not be as healthy as previously forecast. The World Bank trimmed its prediction to 4% in 2021 and the International Monetary Fund will this week update its own outlook.

Other oil-market news:

Libya restarted a pipeline that carries crude oil to its biggest export terminal, after a halt that caused the OPEC member’s production to drop to the lowest level in two months.
Oil prices are set to rise with OPEC production cuts and a demand boost from a rebounding global economy, said Jeremy Weir, the head of commodities trading giant Trafigura Group.