Oil Futures Spike on Supply, Libya

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent on the Intercontinental Exchange settled Monday's session higher, lifted by concerns over deteriorating situations in Libya and Venezuela that are providing new upside risks for global oil prices amid an already tightening global oil supply-demand disposition.

On Monday, bullish headlines around the world kept oil markets on their toes, as geopolitical turmoil in the key members of Organization of the Petroleum Exporting Countries expanded a security premium on oil prices.

At the market close, West Texas Intermediate May contract spiked $1.32 to $64.40 bbl, the highest price settlement since November, while ICE Brent June futures settled $0.76 higher at $71.10 bbl. NYMEX ULSD May contract settled up 1.47cts at $2.0571 gallon, while RBOB May futures surged 1.93cts to finish the session at $1.9880 gallon.

The Trump administration announced on Monday the designation of Iran's Revolutionary Guard Corps as a "foreign terrorist organization," the first time the United States applied the label to an entire government entity. The step "recognizes the reality that Iran is not only a State Sponsor of Terrorism, but that the IRGC actively participates in, finances, and promotes terrorism as a tool of statecraft," Trump said in a statement that described the IRGC as "the Iranian government's primary means of directing and implementing its global terrorist campaign."

The announcement comes just four days after the United States slapped new sanctions on Iran and a little less than a month before the one-year anniversary of Trump's decision to withdraw the United States from the Obama-era Iran nuclear deal. The IRGC is estimated to control 20% of Iran's economy providing additional sanctions targets for the United States, including foreign companies doing business with IRGC affiliates.

On Friday, Washington further tightened the grip of sanctions on Venezuela's oil industry by including two new companies and 34 vessels owned or operated by Venezuela state-run oil company PDVSA into blocked properties. According to U.S. Treasury Department website the two new companies are Ballito Shipping Inc. of Liberia and Proper in Management Inc., of Greece, which extends the reach of U.S. sanctions on international oil and shipping companies doing business in Venezuela.

According to Reuters, Venezuela's oil output in April is expected to sharply decline, as four extra heavy crude upgraders currently operate at a much lower capacity after several massive blackouts. Two of the upgraders, Petropiar and Petromonagas have remained idle since the first power outage in March. The two idled upgraders are operated by a joint venture between PDVSA, Chevron and Russia's Rosneft.

In Libya, another wildcard OPEC member, escalating fighting among competing militias drove the country to the brink of civil war over the weekend. Libya has struggled to rebuild its oil industry since the start of the conflict in 2011, as the country's oil facilities were the key targets to finance the militias. According to analysts, nearly 400,000 bpd of oil in Libya are at immediate risk. A Bloomberg survey showed the North African nation produces 1.1 million bpd.

In the coming weeks, security deterioration in Libya, joined by an intensifying U.S. sanctions regime on Venezuela and Iran will test the oil market sensitivity to geopolitical risk.

Liubov Georges can be reached at liubov.georges@dtn.com