Crude oil prices deteriorated sharply over the week, with Brent crude falling to $60.69 per barrel, the lowest in nearly two months.
WTI dropped to $54.19 per barrel the lowest since October 2019. Pessimism seems to be back after fears that China’s coronavirus outbreak may dent crude oil demand. Still, China crude oil imports are increasing and the crude price encourages more buying to build up Chinese inventories.
Traders have largely ignored Libyan supply issues because the market has become used to supply outages since 2011.
West African crude oil has usually stepped in to the fill the gap in European and the Mediterranean markets. At the same time the US shale oil revolution of the last six years has meant that less of this type of crude from West Africa has been sent to the US.
If the Libyan oil was a medium sour crude grade like the Arabian Gulf crude oil grades, the market situation would be different as this type of oil cannot be easily replaced.
Because of copious US shale oil supplies, the West African crude oil market continues to struggle with the ripple effects of the Atlantic basin being awash in crude oil availability.
Over the longer term, prospects look bleak for European refinvers and Nigerian crude sales by implication.
Big new refineries in Asia are posing stronger competition to Europe’s products market, as are US oil product exports which have been made cheaper and more plentiful by the growth of shale oil. Noticeably, shale oil has already displaced West African barrels from the US market.
Today, the marginal barrel of crude oil has become extremely light, starving sophisticated refiners of heavy crude oil and thereby narrowing light/heavy differentials.
This has meant heavier crude grades have been outperforming lighter sweet crude grades in recent years, so the loss of Libyan crude did not have a major impact.