Libya pipeline restart cuts into oil rally

Oil prices rose on Tuesday but settled below session highs after Libya announced the reopening of pipelines after a two-year blockade that ended earlier this month.

Benchmark Brent crude futures LCOc1 settled up 43 cents, or 0.8 percent, to $55.35 a barrel after touching an intraday high of $55.92. U.S. crude futures CLc1 rose 11 cents to $52.23 a barrel.

Prices came off highs in the afternoon after Libya’s National Oil Corp said pipelines from its western fields had been reopened. It expects to add 270,000 barrels a day in state production in the next three months. Protesters agreed last week to end a longstanding blockade.

Conflict and political disputes have cut Libya’s production to just 600,000 barrels a day, far below output of 1.6 million before uprisings in 2011.

The market’s primary focus in recent months has been on the Organization of the Petroleum Exporting Countries, which has agreed to cut output by 1.2 million barrels daily.

Non-OPEC producers also agreed to also limit output. Traders expect U.S. inventories to decline in coming weeks, but oil may trade in a range until early indications in January of whether producers are holding to their pledges.

“We think the next catalyst is not going to be until mid-January until we start to see details on who is cutting and who has upheld their end,” said John Macaluso, trader at Tyche Capital Advisors in Mineola, New York.

OPEC’s agreement to cut supply did not include Libya, so its added production may undermine the group’s efforts to reduce a global crude glut.

The deal to cut global supply among OPEC and non-OPEC producers struck this month has boosted oil prices to 17-month highs.

The market is awaiting official U.S. data on weekly inventories, due Wednesday morning. Analysts polled by Reuters expected U.S. crude oil inventories to show a draw of 2.4 million barrels in the week to Dec. 16.

The American Petroleum Institute, an industry group, will release its figures late Tuesday, ahead of official government figures.

U.S. gasoline futures RBc1 rose 1.8 percent at $1.5917 a gallon on the New York Mercantile Exchange. Traders expect low imports to result in an drawdown for products when the U.S. Energy Department releases new data on Wednesday.

Crude stocks fell more than expected last week, feeding expectations for another large drop in this week’s figures.

Source: Reuters