UPDATE 9-Oil falls on Libya port deal, despite U.S. inventory drop

Wed Jul 2, 2014 3:26pm EDT

Related Topics

* Libyan rebels say will reopen two oil terminals

* Brent on track for biggest weekly fall since January

* EIA data shows bigger-than-forecast cut in crude stocks (Updates prices to settlement)

By Anna Louie Sussman

NEW YORK, July 2 (Reuters) - Crude oil fell about $1 on Wednesday on encouraging signs for supply from Libya and Iraq, notching the lowest close in almost three weeks despite a big draw in U.S. oil inventories.

Libyan export capacity looked likely to recover by about 500,000 barrels per day as rebels blockading eastern oil ports have agreed to reopen the remaining two terminals at Es Sider and Ras Lanuf.

"Overall the fundamentals are looking a little more bearish, partly because the market believes that Libya will actually export oil," said Phil Flynn, an analyst at the Price Futures Group in Chicago, Illinois.

Brent crude shed $1.05 a barrel to settle at $111.24. U.S. light crude fell more than a dollar to a session low of $104.25, then bounced to settle down 86 cents at $104.48.

Oil prices pared losses after the U.S. Energy Information Administration reported that domestic crude stocks fell by 3.2 million barrels last week, more than the 2.2 million-barrel draw forecast by analysts.

The settlement price for both benchmarks was the lowest since mid-June.

"The bullish inventory data was able to rally the market, then we hit resistance and the market failed," said Bill Baruch, senior market strategist at iitrader.com in Chicago, Illinois.

There have been repeated reports that Libyan ports would reopen and production increase, but analysts said the latest developments were likely to have more impact.

U.S. gasoline stocks fell by 1.2 million barrels, countering expectations of a 0.4-million-barrel rise, as drivers filled their gas tanks ahead of the national holiday weekend.

However, a hurricane set to hit the U.S. East Coast over the weekend could cause people to cancel vacation plans.

IRAQ SITUATION "HOLDING"

Brent, the North Sea benchmark, hit a nine-month intraday high of $115.71 two weeks ago on worries that a Sunni Islamist insurgency in northern Iraq would hit oil output and exports.

Prices have fallen steadily since then as oil facilities, mostly in southern Iraq, hundreds of kilometers from the fighting, have remained in operation. Iraq is OPEC's second-biggest producer and exporter and pumped 3 million bpd last month, a Reuters survey showed.

"The situation is kind of 'holding,' for lack of a better word," said John Kilduff, a partner at Again Capital LLC in New York.

"We're probably less worried about an attack on the southern oil infrastructure than we have been in several weeks. Between the Kurds and the Shia central government securing the oil fields, the oil will continue to flow."

Oil producers would struggle to cover another big oil supply outage, industry officials say, increasing the chance governments may tap strategic reserves if Iraq's southern exports were disrupted. (Additional reporting by Christopher Johnson in London, Manash Goswami in Singapore; Editing by William Hardy, Dale Hudson and David Gregorio)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.