Oil Recovers on Stronger Stocks, Libyan Supply Outage

Oil prices recouped some of the previous session’s hefty losses on Tuesday as they found support on a fairly stronger global stock market, a mildly weaker dollar, and an unexpected supply outage in Libya.

Brent crude futures for February delivery gained 1.4 percent to $60.81 per barrel. The international benchmark registered a 3 percent drop on Monday.

US West Texas Intermediate (WTI) crude futures for January contract rose 2.1 percent to $52.09 a barrel.

The dollar is a bit weaker, but other than that, there is no reason this market should rally right now. It fell quite hard yesterday, so it might correct higher, strategist Tamas Varga said.

Stocks worldwide have lost more than 5 percent so far this month due to worries over the impact of the deepening trade conflict between the US and China, and the crude has been caught in the downdraught.

The US dollar, which has climbed 5 percent this year on rising interest rates, has also became one of the headwinds for oil and other industrial commodities, which usually benefit from a weaker currency.

Partly driving oil prices higher on Tuesday was the production outage in Libya, where the National Oil Company (NOC) announced force majeure on exports from the El Sharara oil field, the country’s largest, which was shut down by a local militia.

The NOC said the shutdown would result in an output loss of 315,000 barrels per day (bpd) and an additional loss of 73,000 bpd at the El Feel oilfield because of the latter’s reliance on Sharara for electricity.

Production at the Zawiya is also at risk due to its dependence on crude supply from Sharara.

The Organization of the Petroleum Exporting Countries (OPEC), along with non-affiliated countries such as Russia and Oman, agreed last week to reduce output by a joint 1.2 million bpd from January to offset supply and demand.

Russia stated on Tuesday that it intends to cut production by 50,000 to 60,000 bpd in January, as part of a gradual move to meeting its pledge under the deal to reduce by 220,000 bpd.

Kuwait and Iran this week had cut their January crude oil supply prices to Asia.

Still, analysts and investors are expressing doubt over the supply cut’s effectiveness in preventing a repeat of 2014, when mounting global production outdone growth in demand and left a huge overhang of unwanted supply.

There remains a lot of uncertainty if the production cut is thick enough to make a significant dent in global supply, said Stephen Innes, head of trading for Asia-Pacific at futures brokerage in Singapore.

The lack of confidence was evident with money managers as they have pulled their bullish holdings of Brent and WTI crude futures and options to the lowest level in three years this month.

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