Oil rose toward $56 a barrel on Monday, supported by another shutdown at Libya‘s largest oilfield over the weekend and geopolitical tensions following last week’s U.S. missile strike on Syria.
Libya‘s Sharara oilfield was shut on Sunday after a group blocked a pipeline linking it to an oil terminal, a Libyan oil source said. The field had only just returned to production, after a week-long stoppage ending in early April.
The outage adds fuel to a rally that started late last week after the United States fired missiles at a Syrian government air base. While analysts point out that Syria produces only small volumes of oil, the Middle East is home to more than a quarter of the world’s oil output.
Rising tensions in the region has the potential to produce knee-jerk rallies in oil, even if major producing countries nearby like Iran, Iraq or Saudi Arabia, are not affected.
“There are a few geopolitical problems at the moment. On top of that, Libya isn’t producing oil, so that’s adding to the bullish side of the market,” said Phil Flynn, an analyst at Price Futures Group in Chicago.
Brent crude, the global benchmark, rose 74 cents to settle at $55.98, not far from the one-month high of $56.08 reached on Friday. U.S. crude was up 84 cents to settle at $53.08.
Oil prices have also been supported by a deal led by the Organization of the Petroleum Exporting Countries to cut output by 1.8 million barrels per day for the first six months of 2017, to get rid of excess supply. Libya and fellow OPEC member Nigeria are exempt from cuts.
In a sign of OPEC confidence that the deal is working, Kuwait’s oil minister said he expected producers’ adherence in March to their supply cut pledges to “be higher than the previous couple of months.”
The minister, Essam al-Marzouq, also said he saw “positive indications” in the decline of global oil stocks.
However, that price rally has also encouraged production in other countries such as the United States, filling some of the gap left by OPEC-led cuts.
U.S. crude inventories touched record highs both at the U.S. storage hub of Cushing, Oklahoma, and in the U.S. Gulf Coast in recent weeks, according to U.S. government data.
Traders say the stubbornly high stockpiles and production growth have limited the upside to any rally, though stock draws may finally appear in coming weeks as summer driving season kicks in.
“U.S. shale is going to continue to weigh on market. With refineries coming out of maintenance season, maybe we’ll see some real strength around here soon,” said Tariq Zahir, an analyst at Tyche Capital Advisors.
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