Oil Futures Up on Supply Disruptions

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were higher in early trade Tuesday, as traders purchased contracts as a hedge against the possibility of reduced oil production from Libya and Canada, where an unplanned outage of an upgrader in Alberta threatens to curtail Canadian exports to the United States for the next six weeks.

Syncrude's 360,000-barrel-per-day (bpd) Fort McMurray upgrader, shut on June 20 due to a transformer outage, is expected to remain offline through the end of July.

Media reports indicate Eastern Libyan commander Khalifa Haftar's forces have ceded control of oil ports to a separate National Oil Corporation based in the country's east. The official state-owned oil company from Tripoli will no longer be allowed to export oil, they said.

Along with the Brega and Zueitina terminals, the ports serve the Sirte basin, a collection of oil and gas fields in central and eastern Libya that account for around 650,000 bpd of production, roughly two-thirds of the country's total output.

Some analyst say the Libyan turmoil increases the risk oil exports could be shut-in as the NOC in Tripoli is the only legal entity with the right to sell oil. Analysts estimate attacks in Libya, a member of the Organization of the Petroleum Exporting Countries, have shut-in more than one-third of the country's output, as fighting continues between rival militant groups seeking control of the North African nation.

According to secondary sources cited by OPEC, Libyan crude oil production averaged 955,000 bpd in May, off 24,300 bpd from April.

Analysts at Washington, D.C.-based PowerHouse, a commodity hedge and trade advisory added that while the situation in Libya remains fluid, they're hearing reports that the control of oil exports will be resolved soon. They also have heard that the Canadian outage could be resolved faster than originally expected.

"We're hearing that Libya returned some limited control of its oil assets which is more normal," said Elaine Levine, president of PowerHouse. "It also looks like they're trying to get the Syncrude unit restarted," she said. "I find with all these outages they say the worse, but, there's so much money involved they typically beat their estimates."

Levine added that the market is up this morning following Monday's selloff on trade war talks, "There's been some less aggressive talk about the tariffs both from China and the Trump administration," she said. "We're getting some mixed messages, which has reduced selling on the stock market."

The events follow the recent meetings by OPEC and 10 non-OPEC oil producers to add about 1.0 million bpd of oil supply back to the market beginning July 1 by meeting by meeting compliance with their previously agreed to production cuts that run through year end. The producers have been over complying, in large part due to involuntary production declines in Venezuela and elsewhere.

Near 9:00 a.m. EDT, the NYMEX August WTI futures contract stood 27 cents per barrel (bbl) higher at $68.35, while the September contract was 43 cents higher at $67.47 bbl.

ICE August Brent was up 55 cents to $75.280 bbl, while the September contract was 58 cents higher at $75.13 bbl.

NYMEX July RBOB contracts were 1.59 cents gallon higher at $2.0674 gallon, while the July ULSD contract was 1.13 cents higher at $2.1117 gallon. On Friday, the July RBOB, ULSD and Brent contracts expire.

Brian Whary can be reached at brian.whary@dtn.com