Why Oil Prices Remain Subdued

Oil prices have perked up recently from a spell of torpor because a political dispute in Libya has curtailed much of the North African country’s output.

Early on Friday, futures for Brent crude oil, an international benchmark, were selling for just over $80 per barrel, an increase of about 5 percent from 10 days ago, before falling back below that mark. Yet considering the degree of political turmoil not only in Libya but in the Middle East, the world’s petroleum hub, the market seems surprisingly calm.

Current price levels can be described in different ways — low, moderate — but they are certainly not high compared with recent historical metrics. The average inflation-adjusted annual price for dated Brent, a metric closely related to oil futures, was $94.91 a barrel from 2010 to 2023, said Jim Burkhard, head of energy markets research at S&P Global Commodity Insights.

“It’s not a high price; it’s not a low price,” he said.

Still, ahead of the Labor Day weekend, consumers in the United States are enjoying a respite. At $3.31 a gallon on Monday, gasoline prices were, on average, 13 percent lower than this time last year, the Energy Information Administration said.

The oil supply is plentiful.

The world is well stocked with oil, analysts say. Demand continues to grow, but production seems likely to keep pace.

Brazil, Canada, Guyana and the United States are all increasing their oil output, countering cuts from the Organization of the Petroleum Exporting Countries producers group and its allies, which have held back production by about five million barrels a day, or about 5 percent of global demand.

Knowing all that oil could come to the market helps restrain prices. “That’s why geopolitical concerns really don’t have much of an impact,” Mr. Burkhard said.

The market has even shrugged off the continuing attacks on shipping vessels in the Red Sea. “The market just got tired of reacting to every single attack,” said Viktor Katona, an analyst at Kpler, a firm that tracks oil tanker traffic.

More oil may be coming.

In June, Saudi Arabia, the de facto OPEC leader, and some of its allies agreed to begin gradually feeding what could be around 2.5 million barrels a day of oil back into the market, beginning in October.

Whether the group follows through on the decision, which will be regularly reviewed by the producers, is the biggest question, Mr. Burkhard said.

Richard Bronze, head of geopolitics at Energy Aspects, a research firm, said that the group would most likely begin increasing production this fall.

The Saudis are trying to manage a tricky situation. They worry that any quick increase in supplies may swamp markets, yet they face pressure for increases from member countries like the United Arab Emirates, Iraq and Kazakhstan. Those nations have agreed to make billions of dollars in oil field investments with foreign partners — investments that will be difficult to make profitable without higher output.

Traders will watch their decisions closely each month.

Demand for oil in China is slowing.

World demand is expected to increase only by about one million barrels a day in 2024, less than half the increase seen in 2023, according to the International Energy Agency.

The main reason: China, which has accounted for roughly half of consumption increases in the last two decades, is no longer roaring ahead — a big worry for the oil industry.

China’s shift to electric vehicles in passenger cars and trucks may lead to drops in demand there for diesel this year and for gasoline in 2025, according to the I.E.A. If there were no electric vehicles, global oil demand would be about 800,000 barrels a day higher, Mr. Burkhard said.

Analysts say there is no replacement for China on the horizon.

Libya’s shutdown has lifted oil prices.

The political dispute in Libya is removing oil from the market. Closing oil fields has resulted from a power struggle between what are effectively two competing governments: the internationally recognized one in Tripoli and another in eastern Libya that controls most of the country’s oil fields and has ordered the shutdowns.

Mr. Bronze estimates that more than 60 percent of Libya’s capacity, or the production of 750,000 barrels a day, has been shut down and that this volume is likely to grow.

So far, the shutdown, which represents less than 1 percent of global supplies, has helped lift prices by a few dollars. The question is how long it will continue.

FGE, a consulting firm, said in a report: “We expect both parties have large incentive to resolve their dispute quickly, given the high costs” in lost oil revenue.

Mr. Bronze said, however, that the situation was unpredictable, and if the standoff continued, “the impact is going to be increasingly felt in the physical market and that will show up in oil prices.”

He added that the imbroglio in Libya, an OPEC member, may make it easier for the Saudis to give a green light to initial increases in output.