Picture: REUTERS
Picture: REUTERS

London/Tokyo — Oil prices rose to their highest in more than week on Monday after two large crude production bases in Libya began shutting down amid a military blockade, risking reducing crude flows from the Opec member to a trickle.

Brent crude was up 37c, or 0.6%, at $65.22 by 9.52am GMT, having earlier touched $66 a barrel, the highest since January 9.

The West Texas Intermediate (WTI) contract was 24c, or 0.4%, higher at $58.78 a barrel, after rising to $59.73, the highest since January 10.

Two major oilfields in southwest Libya began shutting down on Sunday after forces loyal to Khalifa Haftar closed a pipeline, potentially cutting national output to a fraction of its normal level, the National Oil Corporation (NOC) said.

The closure, which follows a blockade of major eastern oil ports, risked taking almost all the country’s oil output offline

However, the earlier rise in oil prices eased after some analysts and traders said supply disruptions in Libya could be offset by other producers, limiting the effect on global markets.

“The oil market remains well supplied with ample stocks and a healthy spare capacity cushion. In other words, the bullish price impact may prove to be fleeting,” said Stephen Brennock of oil broker PVM.

Takashi Tsukioka, president of the Petroleum Association of Japan (PAJ), also told a news conference that oil prices may fluctuate due to the latest incidents, but “we don’t have to worry too much about demand and supply balance as Opec can cover shortfalls”.

If Libyan exports are halted for any sustained period, storage tanks will fill within days and production will slow to 72,000 barrels a day, an NOC spokesperson said. Libya has been producing about 1.2-million barrels a day recently.

“A prolonged disruption from Libya would be enough to swing the global oil market from surplus to deficit in the first quarter of 2020,” said ING analyst Warren Patterson.

The EU’s top diplomat Josep Borrell said on Monday the EU will discuss all ways to uphold a formal ceasefire in Libya but any peace settlement would need real EU support to make it hold.

Foreign powers agreed at a summit in Berlin on Sunday to shore up a shaky truce in Libya which has been in turmoil since the fall of Muammar Gaddafi in 2011.

Reuters