Oil prices up nearly 2 per cent
Oil prices rose nearly 2 per cent on Tuesday after armed factions blocked production at two oilfields in Libya and some officials suggested the OPEC supply cut agreement would be extended to the end of the year.
The two Libyan oil fields under attack are the western fields of Sharara and Wafa. Following the attacks, Libyan oil production was reduced by about one-third, down by 252,000 b/d, according to a source from the National Oil Corporation.
Reuters reports the NOC has declared a force majeure on crude loadings from Sharara.
Brent crude futures were up by 58 cents to $51.33/barrel by 11:00 a.m. WTI crude was bumped up by 64 cents to $48.37/barrel.
“The closure of two Libyan oil fields … is supporting the market today with the timing of a potential restart uncertain after militias in western Libya shut key pipelines,” Tim Evans, energy futures specialist at Citi Futures said in a note.
“Past outages have ranged from a few days all the way up to two years, although the need for oil revenues will be a strong incentive to negotiate a pipeline restart sooner rather than later.”
Iran’s Oil Minister Bijan Zanganeh said the OPEC supply cut agreement is likely to be extended past June, to the end of the year. He cautioned that thorough discussions concerning the extension are necessary.
Russia, a non-OPEC country that participated in the pact but has not yet met the cuts pledged, released a joint statement along with Iran saying the two countries will continue cooperation in reducing oil output.
Azerbaijan has also said it is ready to agree to extend the agreement into the second half of 2017.
Meanwhile, major oil traders gathered in Switzerland this week. They say the deal will likely be extended, providing Russia complies.
Oil prices are still weighed down by the increase in US oil production and the expectation that crude inventories in the United States will build again this week.
Analysts polled by Reuters ahead of data to be released late Tuesday and Wednesday anticipated that US crude stocks rose by 1.2 million barrels last week to a record high.
The American Petroleum Institute will release its data at 4:30 p.m. on Tuesday and the US Energy Information Administration data will be released Wednesday at 10:30 a.m.
Ole Hansen, Head of Commodity Strategy at Saxo Bank told Reuters supply remained in focus ahead of the EIA report “where an increase of more than 322,000 barrels will see Cushing hit a record”.
Higher inventories at the Cushing storage site and delivery point for WTI usually depress the US benchmark, widening its discount to Brent, which makes US crude more attractive to importers.
With that, US crude exports are set to increase, according to analysts and traders. Rising US production has pushed WTI’s discount against Brent to the steepest its been since the US lifted its ban on exports in late 2015.
