Oil prices plummeted on Monday as Libya begins production at its largest oil field, restoring production to about 70,000 barrels (twenty percent of its full capacity of 340,000 barrels a day).
Light, sweet crude for October delivery declined by 1% (89 cents) to $91.52 per barrel on the New York Mercantile Exchange, with the October contract expiring at the end of the trading day on Monday.
The Brent benchmark also declined, by 1.4% ($1.42), down to $96.97 per barrel.
Brent and light sweet crude have declined over the past three months as supplies begin to increase. Yet, the U.S., Iraq, and Libya have all been increasing production.
Historically, conflicts in the Middle East would be a threat to oil supply disruptions and would significantly increase the price in oil prices. However, even though the Middle East is unstable at the moment, oil prices are falling, with civil wars occurring in Syria, Iraq, and Libya, not to mention the current threat by ISIS.
Even with the political unrest in the world’s most prominent oil producing region, the price of Brent is 16 percent lower than it was in June.
What is causing a decline in oil prices?
It does not come down to how much refined products are being exported from the US. Rather, it is thought to be caused because demand is not increasing at the same rate it was in the past. This can be observed by looking at recent U.S. oil consumption (the world’s leading consumer), which has declined to 18.6 million barrels a day from about 21 million before the country’s last recession.
In addition, the second largest oil consumer behind the U.S. is China, and there has been weak demand for oil there too.
However, Phil Flynn, an account executive with brokerage Price Futures Group in Chicago, said that the market is still very supply heavy and there are not many reasons for it to be bullish at the moment.
