Oil price drops as protest ends in Libya and world supply rises

Jan 3, 2014

Increased US production and a deal in Libya prompts biggest one-day drop in oil prices for a year

OIL prices recorded their biggest one-day fall in more than a year yesterday as hopes grew that production would rise in 2014. US crude fell $2.98 to close at $95.44 a barrel, while Brent crude dropped $3.02 to $107.78 per barrel.

"The recent retreat in the price follows reports that an end to protests at a major Libyan oil field could return 300,000 barrels of daily production to the global market," reports Bloomberg Businessweek. "That has raised expectations that supplies will be ample."

Protesters who had forced production at the Al Sharara oil field in Libya to a standstill for two months agreed yesterday to let the oil start flowing again. Reuters reports that Libya's total oil output has declined from 1.4m to 220,000 barrels per day since July last year.

Hopes that Libyan production will recover – and renewed optimism about a deal to end sanctions against Iran that would bring Iranian oil back onto the world market – have led some to predict that prices will continue to fall.

"The price decline boosts those who argue that oil abundance will bring on a decade-long period of relatively low oil prices," reports business news site Quartz. "Among the leaders of this group is Citi's Edward Morse, who forecasts oil prices averaging $80 a barrel through 2020 and beyond."

The prediction is underpinned by a dramatic rise in American oil production, which reached 7.7m barrels per day last October.

But other analysts argue that global demand for oil will outpace the expected increase in production, leading to further price rises.

"In a note to clients today, Oswald Clint's research group at Sanford Bernstein forecasts almost double Morse's oil price estimate [to] $158 a barrel in 2020," Quartz reports. "Bernstein's arguments, among others, are that the US surge will be less than many expect, that global demand will surpass supply growth, and that Opec nations can't subsist at sub-$100-a-barrel and will cut production to hold that as a price bottom."

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