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Crude oil futures surged more than 3% Monday after Israel and Hezbollah exchanged strikes over the weekend and Libya’s rival eastern government said it is shutting down oil production and exports, adding to gains made Friday after Fed chair Jerome Powell indicated a start to interest rate cuts in September.
Oil already was trading higher Monday after Israel sent more than 100 warplanes to take out thousands of Hezbollah missile launchers on Sunday, prompting a response from the terror group, but prices surged after Libya’s eastern government called a force majeure on all oil production and exports in a dispute over control of the country’s central bank, as losing all Libyan exports would have a significant impact on global oil markets.
The boost from the Israel-Hezbollah exchanges likely will be short-lived unless Iran becomes more directly involved, which would “raise oil supply risks more meaningfully,” ING strategists Warren Patterson and Ewa Manthey said, as reported by Dow Jones.
The Libya cutoff represents “real barrels that could be lost, so that would tighten the physical market for as long as it lasts,” UBS analyst Giovanni Staunovo said, according to Bloomberg, with a “risk that production could fall from current levels of 1M bbl/day to zero,” adding that how long such a disruption could last is “the difficult part to assess.”
“Libyan barrels of light-sweet crude… cannot be easily replaced,” Price Futures Group senior market analyst Phil Flynn told MarketWatch.
“Most oil forecasters expect 2025 oil demand growth to hover ~1M bbl/day. Were Libya to go down in another bout of civil war, the balances of 2025 could look very similar to this year’s despite more Saudi and Russian production,” Kpler crude analyst Viktor Katona told Reuters.
U.S. crude is “likely to be the biggest beneficiary here, as European buyers turn to light-sweet U.S. shale oil to replace lost Libyan supply,” which explains why “WTI is rallying so much today, outperforming Brent,” Kpler’s Matt Smith said.
Front-month Nymex crude (CL1:COM) for October delivery closed +3.4% to $77.42/bbl, its highest settlement since August 15, and front-month October Brent (CO1:COM) finished +3% to $81.43/bbl, its best settlement since August 12.
ETFs: (USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI)
Energy (NYSEARCA:XLE) was the day’s strongest sector on the S&P, closing +0.9%, and six energy names ranked among the top 15 gainers on the S&P 500: EOG Resources (EOG) +2.5%, Xcel Energy (XEL) +2.2%, Exxon Mobil (XOM) +2.1%, ConocoPhillips (COP) +1.9%, Marathon Oil (MRO) +1.8%, and APA Corp. (APA) +1.8%.
The higher Middle East premium, along with the Fed pointing to a September rate cut and another likely drawdown in U.S. crude stocks this week should add support to crude, Ritterbusch said, according to Dow Jones, and “any one of these items would appear capable of forcing support into the market and we feel that the combination of these factors could force WTI to as high as the $80 mark” in another week or two.
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