Oil advances to highest this year amid Libyan, Iraqi disruptions

MARK SHENK

NEW YORK (Bloomberg) -- Oil rose to the highest level this year as chaos in Libya curbed output and as an agreement between Iraq’s central government and the Kurdish region over crude exports was tested by falling prices.

Crude climbed 1.8% in London and 1.4% in New York. A spokesman for Libya’s National Oil Corp. said over the weekend that it will stop pumping at all fields if authorities fail to contain attacks that endanger workers. Talks on Monday between Iraq’s central authorities and the Kurdistan Regional Government over oil exports ended without agreement.

Futures dropped almost 50% last year as the U.S. crude output surged and the Organization of Petroleum Exporting Countries decided to let rival producers deal with a global surplus. Oil fell as much as 3.7% in New York earlier Tuesday on speculation that U.S. crude inventories rose from the highest level in more than three decades.

“There are various headlines that are raising concern about the supply stream,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “The situation in Libya continues to worsen, while the arguments between the Iraqi central government and the Kurds may cut exports and we are seeing cuts to loading schedules.”

Brent Increase

Brent for April settlement climbed $1.13 to end the session at $62.53/bbl on the London-based ICE Futures Europe exchange on Fe. 17. It was the highest close since Dec. 11. Volume was 16% above the 100-day average at 3:04 p.m. in New York.

West Texas Intermediate oil for March delivery rose 75 cents from the settle on Friday Feb. 14, to $53.53/bbl barrel on the New York Mercantile Exchange. It’s the highest close since Dec. 30. Transactions on Monday, when there was no floor trading because of the U.S. Presidents Day holiday, will be booked Tuesday for settlement purposes. Brent closed at an $8.24 premium to April WTI.

Egyptian President Abdel-Fattah El-Sisi, whose air force bombed Islamic State targets in Libya on Monday, said his country will ask the United Nations Security Council to authorize intervention in the North African nation. Italy, Libya’s former colonial ruler, said it would consider sending a force under a UN mandate.

Increased violence has battered oil output in Libya. Production fell 150,000 bpd to 300,000 in January, the least since June, according to a Bloomberg survey. The country pumped 1.585 MMbpd in January 2011 before the rebellion that ended Muammar Qaddafi’s 42-year rule.

December Accord

A December agreement between Iraq’s central government and Kurdish authorities allows for as much as 550,000 bpd to be shipped through Turkey from northern Iraq, including 250,000 bpd from the Kurdish region. Talks between the two sides ended without agreement Monday, Kawa Mohammed, lawmaker from oil and gas committee of Iraqi parliament, said by phone.

Crude loadings from Iraqi’s Basra Oil Terminal in Persian Gulf have dropped by almost half from what was planned because of weather delays this month, according to ship-tracking data compiled by Bloomberg and a port agency report.

U.S. crude stockpiles rose to 417.9 MMbpd in the week ended Feb. 6, the most in Energy Information Administration records going back to 1982. The EIA is projected to report on Thursday that crude supplies climbed last week, according to a Bloomberg survey of analysts. Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, rose 1.21 MMbbl to 42.6 MMbbl, the highest since July 2013.

Crude output increased to 9.23 MMbpd in the week ended Feb. 6, the most in EIA weekly estimates that started in 1983. A refinery strike by the United Steelworkers could reduce crude demand, further swelling supplies, according to Thomas Finlon, the Jupiter, Florida-based director of Energy Analytics Group LLC.

“The widening of the Brent-WTI could have been anticipated,” Finlon said by phone. “U.S. inventories are already high and the strike threat looms large on the demand side. By the middle of May if things continue at this rate there will be no place to put the oil at Cushing.”

U.S. drillers cut the number of rigs in service by 84 to 1,056 in the week ended Feb. 13, according to Baker Hughes Inc., an oilfield services company. The rig count drop wasn’t enough to stop production growth, said Goldman Sachs Group Inc. Lower prices may be needed to balance the market because U.S. output may expand by 600,000 bpd in the fourth quarter from a year earlier, the bank said in a note on Monday.