Oil prices were in decline today, tracking losses in equity markets.
Arab Gulf Oil (Agoco), which is the biggest Libya operating oil producer, announced that it will not resume production any sooner than the civil war in the country comes to an end. Before the unrest kicked in, Arab Gulf Oil accounted for over a quarter of the country’s total production.
However, the supply concerns stemming from Arab Gulf Oil’s statements did not have much of an impact on oil futures as traders were focusing on the situation in Europe. The arrest of chairman of the International Monetary Fund Dominique Strauss-Kahn on attempted sexual assault charges in New York delivered a setback to the European Union’s efforts to tackle its debt problems, primarily to reschedule Greece’s debt.
Strauss-Kahn was instrumental in negotiating the bailouts received by Ireland, Portugal and Greece.
The news triggered a sell-off in equity markets in Europe and the US, pushing down commodities.
Bank of America Merrill Lynch is expecting oil prices to decline sharply in the second half, forecasting that Brent crude, which currently trades at nearly US$115/barrel, will average US$94/barrel in the final quarter of the year. According to the report, the prices will be weighed down by Europe’s debt issues, the conclusion of the US$600 billion stimulus programme in the US and the return of Libyan oil to the markets.
US light, sweet crude for June delivery, which is currently the most active contract on the New York Mercantile Exchange (NYMEX), dropped to US$98.70/barrel, while July contracts fell to US$99.23/barrel.
June Brent crude last traded at US$113.22/barrel on the ICE Exchange.
Supermajors BP (LON:BP) and Royal Dutch Shell (LON:RDSB) posted small losses, as did BG Group (LON:BG).
Tullow Oil (LON:TLW) and Cairn Energy (LON:CNE) shed 1.4 percent and 1.2 percent.
Services company Wood Group (LON:WG) slipped 2.2 percent.
Midcaps followed. Heritage Oil (LON:HOIL) fell 2.6 percent. Premier Oil (LON:PMO), Salamander Energy (LON:SMDR) and Soco International (LON:SIA) shed just over 1 percent. JKX Oil & Gas (LON:JKX) was down 1 percent.