Oil prices yesterday jumped back above US$65 a barrel as supply disruptions in Iraq and Libya reignited concerns over the market’s vulnerability to geopolitical risk in key production regions. Futures rose more than 1.7 percent in London and New York.
Iraq on Sunday temporarily stopped output at an oil field, with supply from a second site threatened as unrest escalates in OPEC’s 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.
“It’s a very nervous time for oil traders at the moment,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney, adding that “any escalation, particularly in Iraq,” would be a much more significant risk than the news out of Libya. “We remain on high alert.”
Brent crude added as much as US$1.15, or 1.8 percent, to US$66 a barrel on the ICE Futures Europe exchange and traded at US$65.67 as of 2:53pm in Singapore.
West Texas Intermediate futures climbed as much as US$1.19, or 2 percent, to US$59.73 on the New York Mercantile Exchange, before easing to US$59.19.
Libya’s oil production will be limited to 72,000 barrels per day once its storage tanks are full, state-run National Oil Corp (NOC) said, down from more than 1.2 million barrels per day on Saturday.
That is the lowest level since August 2011, data compiled by Bloomberg showed.
The output plunge started when an eastern military commander, General Khalifa Haftar, blocked exports at ports under his control, NOC said on Saturday.
The company declared force majeure, which can allow Libya — home to Africa’s largest-proven oil reserves — to legally suspend delivery contracts.
This is a policy-related disruption,” said Edward Bell, director of commodity research at Dubai-based bank Emirates NBD PJSC. “There could be a pretty quick turnaround if there’s a political solution.”
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 could not be identified.
The Badra field is also at risk of closure.
Oil prices surged earlier this month after Iran retaliated for the US killing of Iraqi general Qassem Soleimani before retreating back to where they were in the middle of last month as the market shrugged off the threat of further disruptions.
OPEC members 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,” AxiTrader Asia-Pacific strategist Stephen Innes said in a note.
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