Oil Prices Rise Amid Supply Disruptions

By Shariq Khan
NEW YORK (Reuters) – Oil prices settled up by more than a dollar a barrel on Thursday as supply disruptions in Libya and Iraq’s plans to lower output raised fears of tighter global supplies.

Brent crude futures gained $1.29, or 1.6%, to settle at $79.94 a barrel. U.S. West Texas Intermediate crude futures rose $1.39, or 1.9%, to $75.91 a barrel.

More than half of Libya’s oil production was offline on Thursday due to a standoff between rival political factions, halting exports at several ports. Approximately 700,000 barrels per day of oil output is offline in Libya, according to Reuters calculations.

Giovanni Staunovo, an analyst at UBS, stated: “Libyan exports were holding up so far, but with the closure of the export terminal, that should translate into a tighter Atlantic basin.”

Analyst Aline Carnizelo from Frontier Commodities highlighted that even with blockades lifted, traders must consider Libya as a wildcard for the markets. She also cautioned that Libya’s offline production could reach 1 million bpd and that a gradual recovery is unlikely before October.

In other news, Iraq plans to reduce oil output in September in response to producing above its agreed quota with OPEC and allies. A source revealed that Iraq, which produced 4.25 million bpd in July, will cut output to between 3.85 million and 3.9 million bpd next month, compared to its agreed quota of 4 million bpd.

Carnizelo remarked, “At the moment, the market is tight and vulnerable to upside moves.”

Additionally, expectations for the U.S. Federal Reserve to start cutting interest rates next month also supported rising oil prices. Atlanta Federal Reserve President Raphael Bostic suggested it may be time for cuts as inflation has dropped and unemployment has risen.

These disruptions and anticipated lower interest rates in the U.S. shifted attention away from signs of weak demand. On Wednesday, oil prices dropped over 1% after data indicated U.S. crude inventories fell by 846,000 barrels, a smaller draw than analysts had forecasted.

In Europe, total oil products inventories in the Amsterdam-Rotterdam-Antwerp (ARA) refining hub rose 1.1% in the week leading to Thursday, as reported by Dutch consultancy Insights Global.