Published On : 01/03/2024

Oil prices gain 3% on supply concerns after oilfield shutdown in Libya

By Scott DiSavino

NEW YORK (Reuters) -Oil prices climbed about 3% on Wednesday after a disruption at Libya’s top oilfield added to fears that tensions in the Middle East could reduce global oil supplies.

Brent futures rose $2.44, or 3.2%, to $78.33 a barrel by 11:06 a.m. EST (1606 GMT), while U.S. West Texas Intermediate (WTI) crude rose $2.45, or 3.5%, to $72.83.

That put both benchmarks up for the first time in five days and on track to rise by the most in a day since mid-November.

Protests forced a full shutdown of production at OPEC member Libya’s 300,000 barrel per day (bpd) Sharara oilfield.

“The Sharara shutdown certainly adds to pricing upside, especially of Brent,” said Viktor Katona from energy analytics firm Kpler, who assessed the disruption as likely short-lived.

Oil prices also climbed due to continued attacks on vessels in the Red Sea by Houthi fighters.

The Iran-backed group in Yemen said it had “targeted” a container ship bound for Israel, a day after the U.S. Central Command (CENTCOM) said the Houthis had fired two anti-ship ballistic missiles in the southern Red Sea.

Israel intensified its bombing of the Gaza Strip after the war stretched into Lebanon with the killing in Beirut of Hamas’ deputy leader. Israel has neither confirmed nor denied responsibility.

Energy traders worried that a wider Middle East conflict could close crucial waterways like the Red Sea and Persian Gulf for oil transportation and disrupt trade flows.

Adding to Middle East uncertainty, two explosions killed more than 100 people in OPEC-member Iran and wounded scores at a ceremony to commemorate top commander Qassem Soleimani who was killed by a U.S. drone in 2020.

The Organization of the Petroleum Exporting Countries (OPEC) said cooperation and dialogue within the wider OPEC+ oil producer alliance will continue, after OPEC member Angola last month announced it would leave the group.

OPEC+ includes OPEC and allies like Russia.

UPCOMING U.S. REPORTS

Looking ahead, the energy market is waiting for key U.S. interest rate and oil inventory data over the next couple of days.

The U.S. Federal Reserve (Fed) will release the minutes of its December meeting at 2:00 p.m. EST on Wednesday.

While the Fed is widely expected to keep rates on hold in January, traders have priced in a 65.7% chance of a 25 basis point rate cut in March, as per CMEGroup’s FedWatch tool.

Lower interest rates reduce consumer borrowing costs, which can boost economic growth and demand for oil.

The American Petroleum Institute (API), an industry group, and the U.S. Energy Information Administration will release their oil inventory reports one day later than usual due to the New Year holiday with API expected around 4:30 p.m. EST on Wednesday and EIA on Thursday.

Analysts forecast U.S. energy firms pulled about 3.0 million barrels of oil from storage during the week ended Dec. 29. [EIA/S] [EIA/A]

That compares with a build of 1.7 million barrels in the same week last year and a five-year (2018-2022) average decline of 4.0 million barrels.

Separately, the U.S. Department of Energy said it is seeking to buy up to 3 million barrels of U.S.-produced sour crude oil for delivery in April to help replenish the Strategic Petroleum Reserve (SPR).

(Reporting by Scott DiSavino, Noah Brownning, Natalie Grover, Trixie Yap and Laura Sanicola; editing by Barbara Lewis, Louise Heavens, Jan Harvey and David Evans)

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