Our market view - week 39
The prospect of military intervention in Syria saw Brent hit $117 in late August. But prices have fallen back as geopolitical tensions and concerns about supply in Libya have eased. Last week, oil prices dropped by more than 3%.
The rebound to around 700,000 bpd of output from Libya, one of the largest suppliers of high-quality light sweet crude, contributed to the drop in prices. However, a significant amount of supply still remains offline, and the situation in the country remains volatile. Earlier this year, Libya produced around 1.4 mbd.
There are also significant outages in Nigeria and in Southern Iraq. According to the EIA, about 2.7 mbd was offline during August in Libya, Iran, Iraq, Nigeria, Syria, Yemen and Sudan. Pronounced political and security problems in these oil producing regions leave oil supply highly vulnerable to shortfalls. This should prevent prices dropping much even if the US shale oil production continues its rapid growth.