Monday’s losses were quite deep but not unjustified. The prospect of new potential lockdowns in markets such as the UK and the US terrified traders, who saw once again oil demand being fragile and prone to how the pandemic progresses.

Adding insult to injury, Libya looks like it will bring its oil productions back on line, which is definitely stretching the supply-demand relationship to uncomfortable levels. 

Still, losing $2 a barrel yesterday is quite a steep drop, so the market today is adjusting the impact to a bit higher price levels.

The price move today is also an indication that the tropical storm Beta is not expected to have a significant impact on oil supply.

However, Beta may unleash heavy rainfall on the Louisiana and Texas coasts which could somewhat dent oil demand instead. 

More importantly for the market, all eyes are on Libya’s attempts to restart its oil exports from the “safer” ports such as Hariga and Brega, and the NOC has guided it expects crude production to ramp up to 260,000 bpd next week.

This is a modest start for Libya, but its total output can exceed 1 million bpd, the massive amount that has been shut-in since mid-January.

Production during Feb-Aug-2020 averaged merely 100,000 bpd with output coming only from offshore, unaffected by the port and oil facility blockades.

The market in general doesn’t need Libya’s oil now, but Libya surely needs the oil revenue. We doubt the path to recovery will be a smooth one as false starts have happened before, but things look arguably more promising in our view this time.

Should Libyan production returns, exempt from production cuts, it would add 1 million bpd to Saudi Arabia’s woes.

The oil giant and OPEC+ powerhouse pushes for full OPEC+ compliance but if the world needs to reintroduce second lockdowns to fight the coronavirus spread, global oil demand could add 3-4 million bpd of downside risk.

Refineries fight to survive and need to reduce refinery throughput as jet fuel production is loss making and diesel production is also approaching that point.

In the meantime, the market awaits the weekly US oil estimates from API, as well as the Fed Chairman’s prepared speech to Congress, tonight.

The mood is surely more gloomy for oil going into the autumn, but for now the market is holding up despite risks pointing south.