Oversupply fears persist as oil price rises

Oil prices rose on Thursday after falling around three per cent in the previous session, fired by an unexpected fall in United States’ crude inventories.

But the market seemed to be more concerned about the possibility of a sharp increase of the supply from Libya and Nigeria, which could further dampen hopes of a sustained price increase.

United States crude inventories dropped by 559,000 barrels in the week to September 9, defying analysts expectations of a crude build of 3.8 million barrels.

Brent crude futures LCOc1 were trading at $46.05 per barrel at 0642 GMT (02:42 a.m. EDT), up 20 cents, or 0.4 per cent, from the last settlement. US West Texas Intermediate futures CLc1 were up six cents, or 0.1 per cent, at $43.64 a barrel.

Prices fell about three per cent for a second straight day on Wednesday following a 4.6 million barrel build in U.S. distillates inventories.

The jump was the biggest weekly build since January and put distillate stocks at six-year seasonal highs.

“It is good news at this time of the year to see a draw like that (in crude stocks),” said Ric Spooner, chief market analyst for CMC Markets. “But the market seems to be more concerned at the moment about the possibility of a sharp increase of the supply from Libya.”

Crude prices have fallen by around eight per cent in the last five trading sessions, and concerns are growing over the possibility of returning crude supplies from Libya and Nigeria.

“Both Nigeria and Libya have seen domestic conflicts curb exports. However, both are looking to resume some facilities in the coming weeks,” Australian bank ANZ said in a note.

Libya is working to lift force majeure at its port of Zueitina, indicating that Libyan crude exports could start flowing soon.

Expectations that Nigerian crude supplies could also be returning as offers for October-loading Qua Iboe crude have emerged even as force majeure on the grade remains in place.

Libya has made at least half a dozen failed pledges to restart shipments. What may be different this time is that the NOC has struck a deal with Khalifa Haftar, commander of forces who took control of Es Sider and Ras Lanuf. He also has control of the oil fields and pipelines that feed them.

Also, Exxon has filled storage facilities at its Qua Iboe export terminal in Nigeria and is awaiting government clearance to resume shipments, a person familiar with the matter said on Wednesday.

Exxon declined to provide a timeline for a restart and said that a force majeure, in place since July, still stands.

In Nigeria, militant groups have repeatedly attacked oil infrastructure this year, making any resumption of flow reliant on pipeline and export terminals being secure from further incidents. Qua Iboe has been under force majeure since a “third-party impact” on a pipeline in July, according to Exxon.

“If it is true, it is another downward pressure for the markets because that would be a large amount to return to the market,” Thomas Pugh, commodities economist at Capital Economics, said by phone, adding that he doubts the resumptions will materialise given the situations in both countries.

West Texas Intermediate, the US benchmark, was 0.3 per cent higher at $43.70 a barrel at 12:56 p.m. in Hong Kong. Brent gained 0.5 per cent to $46.09 a barrel on the London-based ICE Futures Europe exchange.