Weak Bounce in Oil Prices Despite Russia Cuts, Libya Shutdown

Oil prices have been moving higher, closing the weekend gap lower, but the upside momentum is slow, despite crude production disruptions. During late August, we saw a strong bounce off the support zone in crude Oil after political tensions in Libya, which led to a shutdown in the country’s Oil production fields. However, the 200 SMA (purple) acted as support, rejecting the price and WTI reversed lower, opening with a bearish gap as well today at the start of the Asian session.

WTI Crude Oil Chart H4 – The Highs Keep Getting Lower

Factors Contributing to Bearish Oil Prices

Weak Economic Conditions in China and Europe: Over the weekend, data revealed that China’s manufacturing PMI declined further, highlighting the ongoing economic slowdown. Similarly, Europe’s economic challenges are persisting, which is keeping the forecast for oil demand subdued. These factors are contributing to a bearish outlook for oil prices.

OPEC+ Production Plans: Another key factor pressuring oil prices is OPEC+’s plan to increase output by 180,000 barrels per day (bpd) in October. This move is part of a broader strategy to gradually roll back the recent 2.2 million bpd production cuts while still keeping some level of reduction in place until 2025. However, this plan remains tentative and will depend on the trajectory of oil prices.

Libya’s Oil Output Situation: Regarding the Libyan oil shutdown, S&P Global reports that up to 230,000 bpd has been restored in three fields to mitigate oil shortages. Despite this partial restoration, some fields remain shut down, continuing to affect Libya’s overall oil production capacity.

Russia’s Compliance with Production Cuts: Russian Deputy Prime Minister Alexander Novak indicated that Russia would bring crude production down to levels acceptable under the OPEC+ agreement by the end of August. Recent data supports this, showing that Russian exports have decreased by 450,000 bpd month over month, suggesting compliance with the cuts. However, this reduction is likely to be temporary, lasting only 1-2 months, as OPEC+ plans to boost production again soon.

US WTI Crude Oil Live Chart