Oil bounces from September low as fighting flares in Libya

One of the main drags on oil last week was speculation about the resumption of production in Libya and Nigeria.

Huge volumes of production are idled because of violence and discord but much of it will be easy to resume once deals are in place.

Libya in August was producing just 207K barrels per day compared to pre-war levels of 1.6 million barrels per day. Officials there have said bringing production back to those levels is almost as simple as flipping a switch.

Recent deals have paved the way for a resumption of production and exports but an attempt to load a tanker holding 781K barrels of oil on Sunday was suspended after fighting broke out at the facility in Ras Lanuf.

The idea is that perhaps it's all not as peaceful as some officials had hinted.

It's a similar story in Nigeria where the Niger River Delta Avengers agreed to a truce. The problem is that the group is hyper-fractured and whenever one 'leader' accepts a deal (and whatever payout goes along with it), another 'leader' of the group springs up to take his place.

Today, Nigeria's oil minister said current production is 1.75 million barrels per day. The country was pumping 2.6 mbpd a few years ago but that's fallen off steeply in 2016. Given peace and political stability, they could pump around 3 mbpd but at the moment, it's going to be a slow process. Still Minister Kachikwu said production will rise to 1.8 mbpd in October and 2 mbpd by year end.

In a market that's already over-supplied, production rises in Libya and Nigeria could send prices spiralling.

Crude prices fell 6.2% last week but the September low didn't break on a closing basis. Oil then jumped on the Libya headlines but after WTI hit $43.91, it has slowly faded down to $43.58.

Understandably, the market is on edge ahead of the BOJ and Fed, so expect a bit of consolidation before a fresh run at $43.00 and below.