UPDATE 7-Oil holds near $108 as caution on Libya prevails

Thu Jan 9, 2014 9:59am EST

Related Topics

* U.S. crude stocks fall, but rise at Cushing hub

* Brent premium to U.S. crude hits highest since early December

* Brent supported by North Sea Buzzard field output fall (Updates prices)

By Simon Falush

LONDON, Jan 9 (Reuters) - Oil held near $108 a barrel on Thursday on caution over resolving Libya's oil export deadlock and on production problems at a North Sea oil field.

Brent crude oil was also lifted after traders discovered that output at Britain's Buzzard oilfield in the North Sea had been disrupted the previous day.

Nexen, the field's operator, said that it was in the process of restarting the field.

Buzzard is the largest of the fields that contribute to the Forties crude blend, the most important of the North Sea crudes underpinning the Brent benchmark.

Brent crude for February delivery was 61 cents higher at $107.76 per barrel at 1433 GMT, after reaching a high of $108.20.

Brent fell as much as $6 per barrel last week, after Libya said it would restart its El Sharara oil field.

It is now producing around 650,000 barrels per day (bpd) of oil, of which 510,000 bpd is being exported, Oil Minister Abdelbari Arusi told Reuters on Wednesday.

This is up from below 100,000 barrels per day late last year but still around half of exports before protests paralysed Libya's output.

Analysts said expectations that exports would quickly rise back towards the 1.4 million barrels per day seen before strikes at oilfields began last July had evaporated due to escalating tensions between the Tripoli government and an armed group controlling three eastern oil ports.

"The market was too optimistic about developments in Libya and it's clear that the conflict is far from resolved and it's not going in the right direction," said Bjarne Schieldrop, chief commodity analyst at SEB in Oslo.

Libya said on Wednesday it would stop doing business with, and take to court, any foreign firms trying to buy oil from eastern ports seized by armed protesters.

The statement came after tension built this week with rebels inviting foreign firms to buy crude from them and the Libyan navy firing warning shots near a tanker it said was trying to load oil illegally.

U.S. oil was up 34 cents at $92.33. The contract shed $1.34 to a six-week low on Wednesday as a large build in crude stockpiles at the contract's delivery point in Cushing, Oklahoma, weighed on the market.

The worries about Libya and building U.S. stocks helped to push Brent to its highest premium to U.S. crude since early December, above $15 per barrel CL-LCO1=R.

While the Cushing stocks rose, total U.S. crude stocks fell by 2.7 million barrels in the week to Jan. 3, data from the U.S. Energy Information Administration (EIA) showed.

Overall U.S. crude inventories fell for the sixth straight week, totalling 33.5 million barrels for the period, the largest six-week drop since October 1990.

Still, commercial stocks remain near historical highs due to growing U.S. oil output.

Stronger-than-expected euro zone economic morale data, which reached its highest in 29 months, also helped to support demand sensitive assets like oil.

Investors will look to U.S. non-farm payrolls on Friday for signs of continued recovery in the world's largest economy, which may bolster speculation over imminent cuts in the Federal Reserve's commodity-friendly stimulus programme. (Additional reporting by Jacob Gronholt-Pedersen in Singapore; editing by David Evans and Jason Neely)

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