Oil prices dip amid Middle East tension and partial shutdown at Libyan oilfield

Oil prices were slightly down on Tuesday after rising by more than 1 per cent earlier in the day, as traders evaluated concerns about escalating tension in the Middle East and a fall in production at Libya’s largest oilfield against signs of a slowdown in the US economy.

Brent, the benchmark for two thirds of the world’s oil, fell by 0.07 per cent to $76.25 a barrel at 4.22pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.36 per cent at $72.78 a barrel.

Libya's National Oil Corporation announced on Tuesday that it would gradually reduce production at the Sharara oilfield, citing force majeure as a result of protests in the region.

The state energy company urged all parties to consider the national interest and support the company's efforts to stabilise and increase production.

Sharara was producing close to 130,000 barrels per day as of Tuesday morning, after a partial shutdown that started at the weekend, a risk analyst with direct knowledge of the situation told The National earlier.

The oilfield had been producing 270,000 bpd before the shutdown.

“It started as a partial shutdown on the evening of August 3,” said Francesco Calzoni, regional manager for North Africa and the Gulf at Aldebaran Threat Consultants.

“Production decreased by roughly 30,000 bpd in the first 24 hours. As of this morning, a 50 per cent decrease in production has been confirmed, so we are pretty close to 130,000 bpd.

“It might decrease even further, but it is unlikely to stop completely.”

Sharara is a joint venture between NOC, France’s TotalEnergies, Spain’s Repsol, Austria’s OMV and Norway’s Equinor.

“Oil production in the Sharara field in Libya was reduced yesterday at 4pm local time. The reduction has been extended today,” an OMV representative told The National on Monday.

“We are currently unaware of the causes. The situation is constantly being monitored.”

Libya has remained divided since the civil war that followed the 2011 revolution.

The western part of the country is governed by the internationally recognised administration known as the Government of National Unity (GNU), which was established through a UN-led political process ahead of elections scheduled for December 2021.

In the eastern region, a rival government called the Government of National Stability emerged in March 2022, taking control of about three quarters of the country's oil production capacity.

On Sunday, the Tripoli-based government described the project's shutdown as “political blackmail”, but did not provide further details.

Oil prices have see-sawed in recent days as traders evaluate the possibility of a full-blown conflict in the Middle East against the increasing risk of a recession in the US.

Global stocks tumbled after a US jobs report last week that heightened fears of a recession in the world’s largest economy, amid concerns that the Federal Reserve might be harming economic growth by delaying interest rate cuts.

The US Labour Department reported a softening employment market, with the American economy adding 114,000 jobs last month, down from 179,000 in June and well below economists' expectations of 185,000.

The unemployment rate rose unexpectedly to 4.3 per cent, its highest level since October 2021.

Last week, crude prices surged by about 3 per cent after the killings of Hamas leader Ismail Haniyeh in Tehran and top Hezbollah military commander Fouad Shukr in Beirut, which led to concerns of a wider regional conflict.