Oil hits fresh five-year low, looks past Libya

Time to buy energy sector?
Time to buy energy sector?

Oil prices got a temporary boost Monday from fresh concerns over Libya's ability to bring oil to market, but prices reversed and U.S. crude futures hit a new five-year low.

The Libyan crisis escalated as the conflict among militias roiled the OPEC-member nation. The strife could create a turning point in the monthslong rout of the oil market that has seen prices plunge as much as 50 percent, Francisco Blanch, head of commodities at Bank of America, told CNBC's "Squawk on the Street" on Monday.

"I do think Libya is a very important supplier. The return of Libya is what started the rout downwards in the first place, so I think if we do see Libya offline for the majority of 2015, it could provide a lot of support to prices here," he said.

But the glut of oil in world markets has been weighing on markets, and OPEC has vowed not to cut production as prices fall. "The market continues to react to the oversupply in crude oil and the reiteration by the Saudis that they're not cutting production," said Andrew Lipow, president of Lipow Oil Associates.

West Texas Intermediate futures for February fell to $53.12 per barrel, breaking through an earlier 2014 low and its lowest price since May 2009.

"We're going to see $50 in the next couple of weeks for WTI," Lipow said. "This could be the first December since 2005 that crude inventories will have risen, when we normally expect a drawdown as oil companies meet their LIFO targets."

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Black smoke billows out of a storage oil tank in the port of Es Sider in Ras Lanuf December 25, 2014. A rocket hit a storage tank at the eastern Libyan oil of port Es Sider as armed factions allied to competing governments fought for control of the country's biggest export terminal, officials said on Thursday.

Fighting has shut down Libya's largest ports at Es Sider and Ras Lanuf. A fire caused by a rocket attack last week destroyed 800,000 barrels of crude—more than two days' of the country's production—Libyan officials said on Sunday.

Libya is now producing just 128,000 barrels of oil per day, Reuters reported. Lipow said about 500,000 barrels of Libya crude have come off the market recently.

BofA estimates the world market is oversupplied by about 1 million to 1.2 million barrels of oil per day, Blanch said. The big supply surplus will come in the second quarter of the year, when demand comes down seasonally, he added.

Blanch projects that Brent crude will rebound after that to $80 per barrel by the end of 2015. The price of benchmark futures fell to $57.46, the lowest since May 26, 2009,when it touched $55.91.

Brent futures had been trading above $60 a barrel earlier Monday on the Libyan news.