Futures rose more than 1.7% in London and New York. Iraq temporarily stopped output at an oil field on Sunday, with supply from a second site threatened as unrest escalated in the Organisation of the Petroleum Exporting Countries’ (Opec) second-biggest producer. In Libya, the country’s oil production almost ground to a halt after armed forces shut down a pipeline, halting output from the nation’s biggest field.
The double-whammy of disruptions in two key producers has jolted focus back to supply risks as oil markets continue their dramatic start to the year. Brent crude has swung in an US$8-a-barrel trading range, as initial fears that the US killing of a top Iranian general threatened Middle East exports gave way to confidence that the world had an adequate supply cushion.
The spike in oil prices is a rational response to the news on Libya and reflects the jumpy nature of the market, but the temporary stoppage of production in Iraq is more significant, said Michael McCarthy, chief market strategist at CMC Markets in Sydney. The US$60 mark for West Texas Intermediate (WTI) is providing “pretty solid resistance”, he added.
WTI futures climbed as much as US$1.19, or 2%, to US$59.73 a barrel on the New York Mercantile Exchange and traded at US$59.21 as of 1.48 pm in Singapore. Brent added as much as US$1.15, or 1.8%, to US$66 a barrel on the ICE Futures Europe exchange, before easing to US$65.69.
Libya’s oil production will be limited to 72,000 barrels per day once its storage tanks are full, according to state-run National Oil Corp (NOC), down from more than 1.2 million barrels per day on Saturday. That’s the lowest level since August 2011, data compiled by Bloomberg showed.
The output plunge started when an eastern military commander, Khalifa Haftar, blocked exports at ports under his control, according to a statement on Saturday from NOC.
NOC declared force majeure, which can allow Libya – home to Africa’s largest-proven oil reserves – to legally suspend delivery contracts.Separately, security guards in Iraq seeking permanent employment contracts blocked access to the Al Ahdab oil field, prompting a production halt, according to an official who couldn’t be identified. The Badra field is also at risk of closure.
“Any escalation, particularly in Iraq, would really test oil’s upside resistance,” McCarthy said. “It’s a very nervous time for oil traders at the moment.”
Oil prices surged earlier this month after Iran retaliated for the US killing of general Qassem Soleimani before retreating back to where they were in mid-December, as the market shrugged off the threat of further disruptions. Members of Opec have spare production capacity after cutting supply to prop up prices, while non-Opec output is expected to climb this year, adding a buffer to potential outages.“Prices are likely to remain capped, given the market’s reactive nature to fade geopolitical risk quickly,” Stephen Innes, Asia Pacific strategist at AxiTrader, said in a note. —Bloomberg
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