Libya's latest threat to curb oil supply follows pickup in global oil demand
August 26, 2024
Key Observations:
In the past 48 hours, Hezbollah and Israel have exchanged missile volleys, Russia has strafed gas compressors and other power infrastructure in Ukraine, and Libya’s fractious domestic politics have threatened to curb its output and export of crude oil.
All three geopolitical factors contributed to today’s firming in global energy futures prices. However, we should not overlook the fact these latest threats to oil supply security follow a noteworthy pickup in global physical oil demand that emerged last week.
Evidence of demand-led strengthening is reflected in cash prices for oil products, term structure in crude futures curves, and—perhaps most importantly—in spot prices for non-exchange-traded commodities.
The Buckeye pipeline cash price for ultra low sulfur diesel, for example, made a recent bottom a week ago ($2.21 per gal, Aug 19) and has since advanced by a dime. The M1-M2 spread in the NYM WTI crude oil futures curve settled at 63 cents five days ago; it has since steepened by 100%. The CRB raw industrials spot price index has been powering higher since Aug 7. It’s back above 550.
An overt pro-growth stance from the Fed is likely to nurture this improving profile for physical commodity demand. While we take the risk of a Libyan oil supply shock seriously, we also note that such threats have been recurrent since 2020. Outages that have occurred have been brief. We think the markets are giving more weight to growth than growls. That’s the bullish undercurrent not to miss.
Source: OPEC, GI, CRB, Blacklight Research.
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