247wallst.com reported that worries over the global economy have been keeping a lid on oil prices, which have dropped back to levels last seen at the beginning of the year.

WTI crude is now up slightly at just over USD 87 per barrel and Brent crude its trading slightly lower, at around USD 112 per barrel following fall in OPEC’s prices for its reference basket of crudes l by 4.7% in August, the sharpest decline since May of 2010.

A weaker outlook for the global economy and the prospective return of 1.3 million barrels of Libyan crude to the market are the driving forces behind the weak performance and the lowered forecast. OPEC is most concerned that a rapid return of Libyan exports will catch the other members of the cartel in a state of over-production, causing an even greater decline in the market price.

According to OPEC, Libyan production could reach 1 million barrels per day within six months and production in the eastern and western portions of Libyan could be back on line much sooner. OPEC concluded that the restoration of Libyan oil production to full capacity in less than a year and a half appears to be realistic.

What that means for the cartel is that they must carefully watch production from the other members so as not to flood the market with crude and drive the price consistently below USD 85 per barrel.

More important, the return of Libyan crude should reduce the current USD 25 per barrel differential between WTI and Brent crudes. As that differential narrows, the OPEC basket price declines even faster.

The slowing economic growth in the developed countries is also weighing down demand for oil in the emerging nations, especially China. Chinese demand is expected to decline by 200,000 barrels per day in the third quarter due to lack of demand from the developed countries that buy Chinese manufactured goods. A somewhat stronger US dollar also helps lower crude prices.

(Sourced from 247wallst.com)