Oil prices settled at a roughly one-week high Tuesday, buoyed by disruptions to Libyan crude production and talk of a six-month extension to an OPEC-led pact to limit global output.
May West Texas Intermediate crude oil—the U.S. benchmark—rose 64 cents, or 1.3%, to settle at $48.37 a barrel on the New York Mercantile Exchange. That was the highest finish since March 20, according to FactSet data.
“Libya oil production is proving to be a lot less reliable, and that makes an extension of OPEC production cuts look more bullish,” said Phil Flynn, senior market analyst at Price Futures Group.
Skeptics of the Organization of the Petroleum Exporting Countries’ deal to curb output have argued that the production cuts would be at least partially offset by Libya, which doesn’t have an output quota under the deal.
“They thought that Libya production would fill the OPEC void. Yet, it is becoming more clear that the events of recent weeks will make it much harder for Libya to be a reliable supplier and get production back to levels they had” before the fall of dictator Moammar Gadhafi, said Flynn.
An armed group in Libya shut pipelines Monday because of a dispute over wage issues, disrupting production of 250,000 barrels a day. But the news follow reports last week that Libya planned to raise its output to 800,000 barrels a day by April, from current production of 700,000 barrels a day.
Meanwhile, there is a growing sense that OPEC members and its allies must act soon to maintain the credibility of an agreement to curb output that ends in June by extending it until the end of 2017.
“Lower oil prices are going to force OPEC into a decision to extend their production cuts for another six months,” speculated Andy Lipow, president of energy consulting firm Lipow Oil Associates. Year to date, WTI crude futures trade down by around 10%.
Source: Market Watch