NEW YORK, 27 Dec 2017:
Oil prices surged to 2½-year highs and US crude touched US$60 a barrel in light trading volume yesterday – boosted by news of an explosion on a Libyan crude pipeline as well as voluntary OPEC-led supply cuts.
Armed assailants blew up a pipeline pumping crude oil to the port of Es Sider yesterday – cutting Libya’s output by up to 100,000 barrels per day (bpd), according to military and energy sources.
The state-run National Oil Corporation (NOC) said in a statement that output had been reduced by 70,000 to 100,000 bpd. The cause of the blast was unclear, it added.
The North African country’s output had been recovering in recent months after being held down for years amid armed conflict and unrest.
Brent crude – the international benchmark for oil prices – settled at US$67.02 a barrel, up by US$1.77 or 2.71%. During the session, front-month prices touched a high of US$67.10 a barrel – their highest since mid-May 2015.
US crude climbed US$1.50 or 2.6% to end the session at US$59.97 a barrel after touching a session high of US$60.01 – the highest since late-June 2015.
Brent has risen 17% in the year to date while US crude has rallied about 11% so far in 2017.
The impending restart of Forties, a key North Sea pipeline, limited the extent of the rally. Oil and gas flows through the pipeline will be increased gradually, its operator Ineos said yesterday, adding that the Kinneil processing plant was partially restarted.
“Keep in mind that the field and pipeline are old and it may have issues and it’s probably why the market isn’t selling off,” said Scott Shelton, a broker at ICAP in Durham, North Carolina.
Trading activity was thin following the Christmas holiday and London trading was muted during Boxing Day. About 72,000 contracts of front-month Brent futures changed hands yesterday, well below the typical daily average of more than 250,000 contracts.
The Organisation of the Petroleum Exporting Countries (OPEC), plus Russia and other non-members, have been withholding some output since Jan 1 to relieve a glut. The producers have extended the supply cut agreement to cover all of 2018.
Iraq’s oil minister said on Monday there would be a balance between supply and demand by the first quarter, leading to a boost in prices. Global oil inventories have decreased to an acceptable level, he added.
That outlook is earlier than predicted in OPEC’s latest official forecast, which calls for a balanced market by late 2018.
US shipments to China, one of the world’s biggest oil consumers, have benefited from the OPEC-led output cuts.
Russia, however, was China’s largest crude oil supplier for the ninth month in a row in November, topping Saudi Arabia for the year so far, China’s customs data showed yesterday.
While the OPEC action has lent support to prices all year, market participants have said the unplanned shutdown of the Forties pipeline on Dec 11 is what helped push Brent to its 2½-year high.
Forties is the biggest of the five North Sea crude streams underpinning Brent, the benchmark for oil trading in Europe, the Middle East, Africa and Asia.
Still, rising production in the US is offsetting some of the OPEC-led cuts. The US rig count, an early indicator of future output, held steady at 747 in the week to Dec 22, according to the latest weekly report by Baker Hughes.
US crude oil inventories were likely down for a sixth straight week, while gasoline stockpiles saw a probable build last week, a preliminary Reuters poll showed.
– Reuters