Oil prices reach lowest point this year as Libyan production adds to glut

Jasper Jolly
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The new Libyan flag flutters outside an
Control over oil production has been a crucial factor in the Libyan civil war since 2011 (Source: Getty)

Oil prices have fallen to their lowest point so far this year despite output cuts from the world’s largest producers.

The falls in prices were driven by Libyan production reaching a four-year high.

Futures for American benchmark West Texas Intermediate crude fell to almost $43 per barrel, losing more than a dollar per barrel to hit lows of $43.22 per barrel.

Read more: Oil prices rally after trading near seven-month lows

Meanwhile North Sea benchmark Brent crude futures prices fell below $45 per barrel, hitting lows of $45.85 for a barrel.

A glut of oil has forced prices down despite the best efforts of nations in the Organisation of the Petroleum Exporting Countries (Opec).

In May Opec extended a production cut first agreed in November, the last time prices fell this low. However, the cartel has struggled to exert the authority it once had on the market, with the advent of more flexible US shale drillers becoming the global swing producers.

While Libya is a member of Opec, it has been exempted from the production cuts as it tries to rebuild its shattered economy, which has been riven by civil war since 2011.

Read more: Oil supply will outpace demand by next year

The US is not part of the price-fixing gang, which has been desperate to buoy oil prices to support revenues in their economies, which are heavily dependent on the commodity. If prices rise then more US drillers are able to start cost-effective production, forcing prices back down.

US drillers added six new oil rigs last week, the 22nd consecutive week of increases and the longest uninterrupted expansion in three decades, according to HSBC Global Asset Management.

Fawad Razaqzada, market analyst, Forex.com, said: "The lack of a positive response in oil prices clearly suggest market participants are not convinced that the OPEC’s efforts will help shore up prices in a meaningful way in the short-term as shale supply continues to rise in the US.

"Unless we see a marked reduction in crude stockpiles, the possibility of further short term falls in the price of oil cannot be ruled out."

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