Brent crude held its ground above $107 per barrel on Wednesday, supported by new worries over Libyan supplies and expectations of another drop in U.S. crude inventories. Although Libya may boost production to nearly 600,000 barrels per day (bpd) by later Wednesday, tensions in the North African country escalated after a heavily armed autonomy group invited foreign companies to buy oil from seized ports.
'The situation looks quite uncertain, and I don't think exports will resume smoothly,' said Tetsu Emori, a commodities fund manager at Astmax Investments. 'Along with increased tension in Iraq and the possible negative impact on oil exports there, oil prices will probably stay supported,' said Emori.
Brent crude for February delivery was 8 cents higher at $107.43 per barrel at 0525 GMT, after settling up 62 cents on Tuesday. U.S crude for February delivery was up 33 cents at $94.00 per barrel, after settling up just over a quarter of a percent.
Production at Libya's El Sharara oilfield rose to 277,000 barrels per day (bpd) on Tuesday, with full output capacity of 340,000 bpd expected later on Wednesday, an official at the state-run National Oil Corp. said. However, a pro-autonomy group in eastern Libya said it would invite foreign companies to buy oil from seized ports and protect arriving tankers, challenging Tripoli's promise to use force to stop them.
Earlier this week, Libya's navy fired at a Malta-flagged tanker it said had tried to load oil at Es-Sider port, which has been seized by the pro-autonomy group.
At least five refineries in the United States and Canada curtailed operations after bitterly cold temperatures caused malfunctions and, in a few cases, full-scale closures. The reduced refining activity has reduced demand for crude, but the extreme cold could also hurt demand for oil products such as gasoline. The frigid weather shut down units at Marathon Petroleum Corp's Detroit refinery on Tuesday, a day after a cold-related equipment failure at Exxon Mobil Corp's plant in Joliet, Illinois.
Commercial crude oil inventories in the United States are likely to have fallen 900,000 barrels last week, a Reuters poll of analysts showed on Tuesday. A fall would mark the sixth straight week of declines and extend a near record drop in stockpiles. Data from the American Petroleum Institute (API) released late on Tuesday showed a much larger 7.3-million-barrel drop in crude oil stocks, and builds in fuel inventories of more than 5 million barrels.
The more closely watched weekly inventory report from the U.S. Energy Information Administration (EIA) is due at 1530 GMT on Wednesday. Last week, oil prices were dragged down after distillate stocks rose to their highest level in just over two months as demand for the fuel took a hit. 'It's not easy to interpret U.S. inventory data at the moment, but lower crude stocks could be supportive of WTI,' said Emori.
While crude output in the United States is approaching record highs, the pace of production growth will begin to slow in 2015, the EIA forecast on Tuesday. U.S. output is likely to rise by 9 percent or 750,000 bpd next year, compared to an expected rise of 1 million bpd this year, the EIA said.
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