Libya has re-entered the oil market lexicon, with a worsening military conflict in the OPEC member giving hedge funds excuse to push U.S. crude toward $65 per barrel, even as Saudi Arabia signals Russian impatience to end output cuts that have already jacked the market up 40% this year.
New York-traded West Texas Intermediate crude was up $1.10, or 1.7%, at $64.21 per barrel by 11:30 AM ET (15:30 GMT) after hitting $64.39 earlier, its highest since November.
London-traded Brent crude, the global benchmark for oil, continued its ascent in $70 territory, trading 60 cents, or 0.9%, up at $70.94 per barrel after a five-month high at $71.16.
Hedge funds long on oil will count on OPEC to tell another intimidating tale of tightening supply in its monthly report slated for Wednesday that could extend the year-to-date rally of 40% in WTI and 31% in Brent.
"The new uncertainty on Libya adds to the uncertainty of the waivers on Iran and to the supply destruction in Venezuela," said Olivier Jakob, managing director at Petromatrix, an oil market consultancy in Zug, Switzerland.
"In an environment where crude oil is moving into backwardation and where the U.S. president is calling for a drop of interest rates, it will be difficult for financial investors to be short crude oil unless Saudi Arabia signals a change of direction," Jakob said, referring to President Donald Trump's pressure on the Federal Reserve to change its stance from a pause on rate hikes to easing.
About 40% of the 1 million barrels per day of oil production in the African state has fallen under the control of Libyan National Army chief Khalifa Haftar, who’s leading a rebellion to unseat the UN-recognized administration in Tripoli.
Libyan oil stockpiles likely fell by 830,000 barrels in the week to April 1, Orbital Insight, a Californian firm that tracks oil tank rooftops using satellites, reported to its clients this week.
Frankfurt-based Commerzbank (DE:CBKG) said if Libyan crude exports were disrupted, it would “noticeably increase the pressure on Saudi Arabia to open up the oil tap again, as it did in the autumn”.
Saudi Energy Minister Khalid al-Falih said on Monday oil inventories remained higher than average but the market was on its way toward rebalancing.
While the 14-member OPEC and its ten other producer allies led by Russia were expected to vote for extended production cuts at an upcoming meeting in June, Falih indicated that a decision might be taken at a lower-key technical grouping in May and it may not necessarily be an extension.
The Saudi energy minister's comments seemed to reflect the thinking of his Russian counterpart Alexander Novak who, according to those familiar with Moscow's energy policy, was "under too much pressure internally to end the cuts".
"I don't think we will need (to do more) ... the market is on its way toward balance," Falih said, referring to the possibility of Saudi Arabia cutting output further below its target under the global deal.
Petromatrix's Jakob said the Saudis seemed to be grandstanding even as they were slowly acceding to Trump's demands that OPEC turn on the spigots again.
"Saudi Arabia will continue to claim that it does not listen to Trump but we take the small change of tone that can be taken as a first sign of appeasement," Jakob said, adding that Riyadh last week increased most of its overseas selling price, or OSP, for crude particularly to Europe.
Scott Shelton, energy futures at broker at ICAP (LON:NXGN) in Durham, N.C., said the concept of "WTI (as) a cheap barrel is now gone and the market will find a way to make more of it."
"Good thing I am bearish," Shelton added.
