Oil Prices Surge Nearly 2% Amid Supply Disruptions in Libya and Iraq.
U.S. West Texas Intermediate (WTI) crude futures rose by $1.35, or 1.8%, reaching $75.85 per barrel by 12:01 p.m. EDT (1601 GMT). Meanwhile, Brent crude futures increased by $1.07, or 1.4%, to $79.72 per barrel.
According to a Reuters report, more than half of Libya’s oil production was offline on Thursday, and exports were halted at several ports due to a standoff between rival political factions. The country’s oil output has been reduced by about 700,000 barrels per day, as per Reuters calculations.
“Libyan exports were holding up so far, but with the closure of the export terminal, that should translate into a tighter Atlantic basin,” noted Giovanni Staunovo, an analyst at UBS.
In Iraq, plans to cut oil output in September have added to supply concerns. The reduction is intended to compensate for exceeding the production quota set by the Organization of Petroleum Exporting Countries (OPEC) and its allies. Iraq, which produced 4.25 million barrels per day (bpd) in July, will reduce output to between 3.85 million and 3.9 million bpd next month, according to a source with direct knowledge of the situation. Iraq’s agreed quota is 4 million bpd.
The potential for a significant output cut and Iraq’s cancellation of an export cargo are likely contributing to the rise in oil prices. However, Staunovo cautioned that most market participants would wait to see an actual drop in exports before reacting further.
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Expectations that the U.S. Federal Reserve may start cutting interest rates next month also provided support for oil prices. Raphael Bostic, President of the Atlanta Federal Reserve, indicated that it might be time for rate cuts, citing lower inflation and higher-than-expected unemployment.
These supply disruptions and expectations of lower interest rates shifted market focus away from signs of weakening demand. On Wednesday, oil prices had dropped by over 1% after data showed that U.S. crude inventories fell by 846,000 barrels to 425.2 million, a smaller draw than the 2.3 million barrels forecast by analysts in a Reuters poll.
Additionally, total oil product inventories in Europe’s Amsterdam-Rotterdam-Antwerp (ARA) refining hub rose by 1.1% in the week leading up to Thursday, according to data from Dutch consultancy Insights Global.
