Oil Futures Gain on Libyan Disruption

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Tuesday afternoon, rallying on news that production at Libya's biggest oilfields has been disrupted due to militia activity. Expectations that U.S. refined products were drawn down again last week also supported ULSD and RBOB futures.

"[Chicago Federal Reserve President] Charles Evans's comments that we'll have just two instead of three interest rate hikes that people expected, which put pressure on the dollar, and then the news about Libyan oil disruption both were the catalyst for the rally," said analyst Phil Flynn at Price Futures Group. "We are now just waiting for the API data and I think another stock draw could push [West Texas Intermediate] crude above $50 per barrel (bbl)."

May NYMEX West Texas Intermediate futures settled 64 cents higher at $48.37 bbl, off a $48.74 one-week high and trading at a 53 cents May/June contango. IntercontinentalExchange May Brent crude futures gained 58 cents to $51.33 bbl, off a four-day high of $51.87. In arbitrage trade, Brent's premium over WTI eased to $2.96 bbl.

In products trade, NYMEX April ULSD futures gained 1.42 cents to a $1.5167 gallon settlement, off a $1.5369 three-week high, and NYMEX April RBOB futures advanced 1.60 cents to $1.6349 gallon at settlement, off a three-week high of $1.6550.

Libya's state-run oil company said the Wafa and Sharara oilfields have been interrupted by rebel activity. A force majeure has been declared on Sharara production and Libya's oil production has now been cut to 560,000 bpd from 700,000 bpd. Details of the incident remain unclear but Libyan officials said a militia cut off a pipeline that ships crude from the two oilfields.

The Libya supply disruption comes at a time when the market is mulling whether production cuts of nearly 1.8 million bpd by the Organization of the Petroleum Exporting Countries and the 11 non-OPEC partners will be extended beyond their June 30 expiration.

Iranian oil minister Bijan Zanganeh said OPEC is likely to extend their 1.2-million-barrel-per-day (bpd) production cuts. Extension of non-OPEC's 558,000 bpd in agreed to cuts will depend on Russia, which is responsible for 300,000 bpd of those planned cuts.

Today Russian President Vladimir Putin and his Iranian President Hassan Rouhan said the two nations would cooperate to help speed up the rebalancing of oil markets. On Sunday, Russian Oil Minister Alexander Novak said that it is still too early to decide on extending output cuts beyond their current June deadline.

The American Petroleum Institute is set to release its oil inventory report for the week-ended March 24 at 4:30 PM ET, with a Schneider Electric survey projecting gasoline stocks declined 2.1 million bbl and middle distillate supplies fell 1.25 million bbl. Expectations for the weekly change in U.S. commercial crude supply was mixed between a 2.75 million bbl build and 2.75 million bbl draw.

The Energy Information Administration's weekly petroleum status report is due out at 10:30 AM ET Wednesday.

George Orwel can be reached at george.orwel@dtn.com