Oil supply risks not gone yet

Brent crude rose on speculation that threats to supply mean recent losses were excessive, while West Texas Intermediate (NYMEX:CLN14) declined, pushing the North Sea grade’s premium to the U.S. benchmark to the widest in a week.

Futures advanced as much as 0.8% in London, rebounding from a three-month low, and slipped as much as 0.6% in New York. The eastern Libyan port of Brega was closed even as rebels committed to keeping two other terminals in the region open. Brent’s (NYMEX:SCN14) 14-day relative strength index was near 30 for a second day, signaling the market may be oversold. The European marker may rebound to $110 a barrel from near $107 today, according to consultants JBC Energy GmbH.

“The supply risks are not gone for good,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said by e-mail. “The coming days could see the oil price making a counter movement given that a price fall by almost $10 within three-and-a-half weeks is excessive despite the abating supply risks.”

Brent for August settlement advanced as much as 84 cents to $107.50 a barrel on the London-based ICE Futures Europe exchange, trading for $107.25 at 1:25 p.m. local time. The contract dropped $2.01 to $106.66 on July 11. Prices are down 3.2% this year. Its premium to WTI was $6.57 a barrel, the highest since July 7 compared to closing prices on ICE.

WTI for August delivery decreased as much as 57 cents to $100.26 a barrel in electronic trading on the New York Mercantile Exchange. The volume of all futures traded was 47% higher than the 100-day average for the time of day. The grade has advanced 2.3% this year.  

Libyan Output  

The discount of the front-month Brent contracts to the second, a structure known as contango, widened to 62 cents a barrel, matching the highest this year, amid signs Libyan supplies are returning. The gap is almost wide enough to encourage the stockpiling of crude on tankers for later delivery, Jens Martin Jensen, chief executive officer of tanker operator Frontline Management AS, said by e-mail.

Brent fell for a third week on July 11 as the Sharara field resumed and two oil-export terminals reopened in Libya, the holder of Africa’s biggest crude reserves.

Rebels seeking self-rule in eastern Libya said they’re committed to an agreement to reopen Es Sider, the nation’s biggest oil port, distancing themselves from a protest that shut a smaller facility, Brega. Es Sider has the capacity to load 340,000 barrels a day, according to the Oil Ministry.  

Brega Closed  

Brega, which was reported July 12 to have been shut by guards seeking better pay, can export 60,000 barrels a day, according to the Oil Ministry. Although located in eastern Libya, Brega was not among the four ports that fell under the rebel group’s control a year ago, and it continued to supply a refinery controlled by the government in the nation’s western region.

Production from the country climbed to 470,000 barrels a day, state-run National Oil Corp. spokesman Mohamed Elharari said by phone in Tripoli yesterday. The nation pumped 300,000 barrels a day in June, ranking it as the smallest producer in the Organization of Petroleum Exporting Countries, data compiled by Bloomberg show.  

Sustained Bounce  

“Much as the Iraq-induced spike to $115 was short-lived, we are of the opinion that the present slump is now close to reaching a level that will be good for a sustained bounce,” analysts at JBC Energy led by Johannes Benigni in Singapore said in a report. There are “a good number of fundamental factors we consider to be of relevance for prices to head back towards $110 and higher,” such as the seasonal rebound in refinery operations expected in the second half.

In Iraq, OPEC’s second-largest producer, fighting remains concentrated in the north, where militants from a breakaway al-Qaeda group known as the Islamic State captured the city of Mosul last month. The conflict hasn’t spread to the south, the source of more than three-quarters of the country’s crude output.

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