LONDON (Reuters) - Brent crude futures dipped below $111 a barrel 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 to hand over the last two terminals and end a blockade, potentially making an extra 500,000 barrels per day (bpd) of crude available for export.
“The market has been waiting for this. The question now is how long it will take for flows to come out,” said Ole Hansen, senior commodity strategist at Saxo Bank.
“The market has been disappointed before so after the initial selloff yesterday it is a case of wait and see.”
Brent extended the previous session’s losses to fall to a three-week low as traders took profits, dropping 59 cents to $110.65 a barrel by 1037 GMT.
U.S. oil declined by 44 cents to $104.04 a barrel, also hitting a three-week trough.
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 for another big oil outage.
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.
Saudi Arabia has deployed 30,000 soldiers to its border with Iraq after Iraqi soldiers withdrew from the area, Saudi-owned al-Arabiya television said.
The fighting has had little impact on Iraqi exports to date, however. Production fell by about 170,000 bpd in Iraq in June, according to a Reuters survey, with southern exports affected by technical issues.
“Oil exports from southern Iraq dropped in late June, but this was due to maintenance and expansion work at an oil terminal near Basra,” said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt. “That means the drop will be temporary and exports should rise in coming months.”
On the demand side the latest data from the United States, one of the world’s top oil consumers, has suggested the economy is recovering.
U.S. crude stocks fell by more than expected last week as refineries increased output before the July 4 holiday weekend, data from the Energy Information Administration showed on Wednesday.
The market is awaiting the closely followed U.S. nonfarm payroll figures for June. Employment growth in the country is expected to have continued at a solid clip.
Fritsch said a positive number could put the brake on further price declines but was unlikely to push prices up, given the market’s reaction to the ADP employment number on Wednesday.
U.S. private payrolls recorded their largest gain in 1-1/2 years in June as businesses stepped up hiring, reinforcing views that the economy had rebounded from its first-quarter slump.
“Brent prices are set to remain well supported at just below $110 given a global growth recovery in H2 2014,” Andrey Kryuchenkov, an analyst at VTB Capital, said in a note.
“However, supply concerns would ease even more should Iraq manage to push militants back to Mosul and also provided Libya continues to ramp up production.”
Additional reporting by Manash Goswami; in Singapore; Editing by Dale Hudson