HardAssetsInvestor

Written by Sumit Roy  |

November 02, 2011

Crude Oil Report: Libya Production Rises, But Saudi Arabia Will Likely Cut Back

Details

Saudis have ample room to cut back production in response to rising Libyan output.

The Department of Energy reported this morning that in the week ending Oct. 28, U.S. crude oil inventories increased by 1.8 million barrels, gasoline inventories increased by 1.4 million barrels, distillate inventories decreased by 3.6 million barrels and total petroleum inventories increased by 1.8 million barrels.

The latest inventory figures had little impact on crude oil prices, which were already higher ahead of the report.

Brent prices were extremely steady over the past week as the benchmark traded in a narrow range near $110. Brent continues to face resistance at the downward trend line that extends back to April. We expect that strong fundamentals will eventually spur prices to break above the trend line — and make their way toward the next key levels of resistance at $120 and $127.

The S&P 500 fell early this week on renewed European worries before rebounding after traders turned their attention to strong economic data in the U.S.

Libya’s oil production rebounded to 345 Kbbl/d in October, according to the latest data from Bloomberg. That’s only a fraction of the 1.6 mmbbl/d the country was pumping prior to the civil war, but up notably from levels close to zero only one or two months ago. Libyan production could continue to ramp higher and should reach as high as 1 mmbbl/d sometime next year.

Speculation is that Saudi Arabia could begin to unilaterally decrease its production in response, keeping prices supported. Depending on the source, Saudi Arabia boosted its production somewhere between 1 mmbbl/d and 1.5 mmbbl/d over the course of the Libyan conflict. That gives the oil giant plenty of room to cut back output now that Libya has stabilized.

Turning to this week’s EIA inventory figures, total petroleum inventories in the U.S. increased by 1.8 mmbbl, against the five-year average of a 3.3 mmbbl withdrawal. In turn, the surplus over the five-year average rose to 6.7 mmbbl, or 0.6 percent.