Oil prices rallied Monday as a rebel group in Libya blocked a significant portion of the North African country’s crude exports, forcing production cuts.
Brent crude, the global benchmark for oil, advanced as much at 1.3% to $65.72 a barrel, the highest since mid-December, before giving up some gains and trading up 0.4%.
The state-run National Oil Corp. said over the weekend that the Libyan National Army, a militia led by renegade general Khalifa Haftar, had shut an export pipeline linked to two key oil fields, which normally pump 400,000 barrels a day.
Fresh anxieties about civil unrest affecting Iraqi supply also had an impact on oil markets after the country’s 70,000-barrel-a-day al-Ahdab facility was forced to shut over the weekend. Security guards blocked access to the fields in an attempt to win permanent employment contracts, according to Bloomberg News.
West Texas Intermediate crude futures rose 0.5% to $58.87 a barrel. U.S. markets will largely be shut Monday for the Martin Luther King Jr. holiday.
The latest incident in Libya came a day after several ports were shut by the same militia, cutting production by 700,000 barrels. The country, a key supplier to Europe, usually produces 1.3 million barrels a day, according to officials.
“This supply disruption is pretty substantial,’’ said Frank Monkam, a crude oil trader at Gunvor Group. “We’re hearing that they have four terminals on force majeure, which means that they’re closed: That’s 90% of exports that are being affected.”
The disruptions curbing Libyan supply may be a negotiating tactic in a country that has been riven by factionalism over nine years of conflict. Rival groups have battled for control of the country’s capital since last spring, prompting the U.S., Russia, Turkey and other world powers to try to broker a peace deal.
The international backers of the two main sides of the conflict agreed Sunday in Berlin to support a cease-fire and uphold an embargo on the arms and financing that have fueled the conflict.
“It’s an ordered shutdown [in Libya], related to the political talks in Berlin,” said Norbert Rücker, head of economics and commodities analyst at Julius Baer. “It’s not an event where you have damage to the infrastructure, so the impact should be short-lived and temporary.”
The disruptions in recent months triggered by geopolitical flashpoints in the Middle East have been resolved fairly quickly.
Earlier in January, a U.S. airstrike in Iraq killed Iranian Maj. Gen. Qassem Soleimani, prompting worries about Iraqi supply disruption. The country is the Organization of the Petroleum Exporting Countries’s second-largest oil producer and produced 4.6 million barrels of crude a day in December, according to the International Energy Agency.
The incident sent oil prices soaring before both sides moved to de-escalate the conflict.
Allegations that Iran was behind a series of attacks on Saudi Arabia’s oil infrastructure, including the September drone attacks that shut down half the kingdom’s oil exports, have sparked fears that U.S. allies could be caught up in a broader regional conflict.
Transocean: 2019 Marked Beginning of Offshore Sector's Recovery
Turkey sets up mechanism to explore oil, gas and mining opportunities in Somalia
Aramco to win unconditional EU clearance for $69 bln SABIC deal
Repsol makes loss as oil, gas prices fall, climate charge bites