Oil Jumps After Unrest Hits Key OPEC Producers Iraq and Libya

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(Bloomberg) — Oil jumped back above $65 a barrel in London as supply disruptions in Iraq and Libya reignited concerns over the market’s vulnerability to geopolitical risk in key production regions.Futures rose more than 1.7% in London and New York. Iraq temporarily stopped output at an oil field on Sunday, with supply from a second site threatened as unrest escalates in OPEC’s second-biggest producer. In Libya, the country’s oil production almost ground to a halt after armed forces shut down a pipeline, halting output from the nation’s biggest field.The double-whammy of disruptions in two key producers has jolted focus back to supply risks as oil markets continue their dramatic start to the year. Brent crude has swung in an $8-a-barrel trading range as initial fears that the U.S. killing of a top Iranian general threatened Middle East exports gave way to confidence that the world had an adequate supply cushion.The spike in oil prices is a rational response to the news on Libya and reflects the jumpy nature of the market, but the temporary stoppage of production in Iraq is more significant, said Michael McCarthy, chief market strategist at CMC Markets in Sydney. The $60 mark for West Texas Intermediate is providing “pretty solid resistance,” he added.See also: The Man Who Cut Libya’s Oil Supply Is Getting Harder to HandleWTI futures climbed as much as $1.19, or 2%, to $59.73 a barrel on the New York Mercantile Exchange and traded at $59.21 as of 1:48 p.m. in Singapore. Brent added as much as $1.15, or 1.8%, to $66 a barrel on the ICE Futures Europe exchange, before easing to $65.69.Libya’s oil production will be limited to 72,000 barrels per day once its storage tanks are full, according to state-run National Oil Corp., down from more than 1.2 million barrels per day on Saturday. That’s the lowest level since August 2011, data compiled by Bloomberg show.The output plunge started when an eastern military commander, Khalifa Haftar, blocked exports at ports under his control, according to a statement on Saturday from National Oil Corp. NOC declared force majeure, which can allow Libya — home to Africa’s largest-proven oil reserves — to legally suspend delivery contracts.Separately, security guards in Iraq seeking permanent employment contracts blocked access to the Al Ahdab oil field, prompting a production halt, according to an official who couldn’t be identified. The Badra field is also at risk of closure.“Any escalation, particularly in Iraq,” would really test oil’s upside resistance, McCarthy said. “It’s a very nervous time for oil traders at the moment.”See also: Iraq Oil Supplies Vulnerable as Mideast Tensions Flare, IEA SaysOil prices surged earlier this month after Iran retaliated for the U.S. killing of General Qassem Soleimani before retreating back to where they were in mid-December as the market shrugged off the threat of further disruptions. Members of the Organization of Petroleum Exporting Countries have spare production capacity after cutting supply to prop up prices, while non-OPEC output is expected to climb this year, adding a buffer to potential outages.“Prices are likely to remain capped, given the market’s reactive nature to fade geopolitical risk quickly,” Stephen Innes, Asia Pacific strategist at AxiTrader, said in a note.–With assistance from James Thornhill, Serene Cheong and Andrew Janes.To contact the reporter on this story: Saket Sundria in Singapore at ssundria@bloomberg.netTo contact the editors responsible for this story: Serene Cheong at scheong20@bloomberg.net, Ben SharplesFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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