UPDATE 8-Oil futures fall as Libya says oil crisis is over

Thu Jul 3, 2014 3:17pm EDT

Related Topics

* Libya reaches deal with rebels to reopen oil ports

* Iraq's Maliki hopes for government deal by next week

* U.S. job growth surges, unemployment near 6-yr low (Updates prices to settlement)

By Anna Louie Sussman

NEW YORK, July 3 (Reuters) - Crude oil futures prices on both sides of the Atlantic fell on Thursday as supply fears began to ease after Libya declared an end to an oil crisis that has slashed exports from the OPEC member.

Libya's government said it had reached a deal with a rebel leader controlling oil ports involving the handover of the last two terminals, potentially making an extra 500,000 barrels per day (bpd) of crude available for export.

"It's very much the Libyan situation and this stasis in Iraq; the supply tightness fears are quickly evaporating," said John Kilduff, partner at Again Capital LLC in New York.

He said the approach of Hurricane Arthur on the U.S. East Coast was dampening demand for gasoline over the Fourth of July holiday weekend, pushing down U.S. crude more than Brent.

Brent fell to a three-week low as traders took profits, dropping 24 cents to settle at $111.00 a barrel.

Brent reached a session low of $110.53 before paring losses ahead of the close, more than $5 off a 9-month high of $115.71 reached on June 19. The selling pushed the front of the Brent futures curve into an intraday contango of 3 cents. LCOc1-LCOc2

Brent continued to pare losses in post-settlement trading, and stood at $111.14 by 3:01 p.m. EDT (1901 GMT).

U.S. oil fell 42 cents to settle at $104.06 a barrel, after dropping as low as $103.67 earlier in the session, also hitting a three-week trough.

U.S. crude has fallen in 10 out of the last 13 sessions and posted a second straight weekly drop. It fell by 1.6 percent in the week to Thursday, and a combined 3 percent in the past two weeks.

The dollar and U.S. bond yields climbed on Thursday as strong U.S. jobs data added to bets that U.S. interest rates could rise within the next six months.

A stronger dollar makes dollar-denominated oil futures contracts more expensive for holders of other currencies.

The crisis in Iraq is still providing a floor for prices, however, with industry officials and analysts saying the world's spare production capacity would struggle to cover another big oil outage.

"We continue to see the geopolitical risk premium get lopped off. Because of the record amount of speculative length in the market, people are taking some money off the table ahead of the holiday weekend," said Gene McGillian, an analyst at Tradition Energy in Stamford, Illinois.

Iraqi Prime Minister Nuri al-Maliki is hoping parliament will form a new government in its next session after the first collapsed in discord. Baghdad can ill afford a long delay as large swathes of the north and west have fallen under the control of an al Qaeda splinter group, and a senior U.S. military officer said on Thursday that Baghdad is unlikely to recover the lost ground on its own.

Saudi Arabia has deployed 30,000 soldiers to its border after Iraqi soldiers abandoned the area, Saudi-owned al-Arabiya television said. But Baghdad denied this and said the frontier remained under its full control.

LITTLE IMPACT

The fighting has had little impact on Iraqi exports to date. Production fell by about 170,000 bpd in June, according to a Reuters survey, with southern exports affected by technical issues.

Iraq's autonomous Kurdish region has hit back at Baghdad over independent oil exports, a letter from the Kurdistan Regional Government (KRG) showed, threatening to counter sue the central government for trying to block its sales. (Additional reporting by Claire Milhench in London, Manash Goswami; in Singapore; Editing by Dale Hudson, Jason Neely, Marguerita Choy, Dan Grebler and Andrew Hay)

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