Oil prices recover after Libya arrest, U.S. inventories limit gains

Brent led the rebound in oil prices on Thursday after a group called the Libya Revolutionaries Operations Room arrested Libyas Prime Minister Ali Zaidan, fueling concern that the countrys oil output which recently began to recover might be crippled again. Steps toward resolving the political deadlock in the U.S. also provided some support. Gains however remained limited after the EIA reported on Wednesday that U.S. crude oil inventories rose by the most in a year last week. A stronger dollar also weighed on prices.

On the New York Mercantile Exchange, WTI crude for delivery in November rose by 0.52% to $102.14 per barrel at 6:51 GMT. Prices held in range between days low of $101.32, the weakest level since July 3, and days high at $102.17 a barrel. The contract plunged 2% on Wednesday but trimmed its weekly decline to 1.5% after Thursdays rebound.

Meanwhile on the ICE, Brent futures for November settlement traded at $109.75 per barrel at 6:51 GMT, up 0.67% on the day. The contract varied between days high and low at $109.78 and $108.85 per barrel respectively. The European benchmark lost 1% on Wednesday but extended its weekly advance to over 0.4% on Thursday.

Oil prices regained some ground after Libyas prime minister was arrested by a group called Libya Revolutionaries Operations Room, Hashem Beshr, the head of the Supreme Security Committee, said. Premier Ali Zaidan was taken from the Corinthia hotel to an unknown destination for unknown reasons on wrong information that the Public Prosecutor had issued an arrest warrant.

Fears that the country, which holds Africas biggest crude reserves, may once again lose control over its oil production supported the market. Libyas oil output fell to a tenth of its 1.6 million bpd capacity in the beginning of September after protesters closed most of its oilfields and export terminals.

Tetsu Emori, a commodity fund manager at Astmax Asset Management Inc. in Tokyo, said for Bloomberg: “We should wait for what happened there. If it’s true, it gives a psychological impact to oil prices, because production resumed just a few weeks ago. If oil fields again lose control of production, exports again would stop.”

Also providing some support, both Republican and Democrats representatives said Congressional leaders were willing to agree on a short-term increase of the $16.7 billion borrowing limit. This comes after President Barack Obama launched a series of meetings with lawmakers on Wednesday to search for an exit of the political impasse.

Inventories data

Losses however were capped as Wednesdays bearish EIA report fanned negative sentiment after the agency said U.S. crude stockpiles rose more than four times above expectations. Crude inventories added 6.8 million barrels in the week ended October 4. Analysts surveyed by Bloomberg expected a moderate 1.6 million increase. U.S. stockpiles now totaled 370.5 million barrels, the highest since July 5, and were above the upper range for this time of the year. Supplies rose by 14.9 million barrels in the last three weeks, the biggest increase for such a period since April 2012. Reserves at Cushing, Oklahoma, the biggest U.S. storage hug and delivery point for NYMEX-traded contracts, declined for a 14th week by 168 000 barrels to 32.6 million. This is the longest streak in record.

Refinery utilization plunged to 86% from 89% in the preceding week, underperforming economists’ expectations for a 1% drop. Crude oil imports averaged 8.0 million barrels per day last week, down by 320 000 bpd from the preceding five-day period.

The report also showed that motor gasoline production increased from the previous week, while distillate fuel output fell, averaging 9.2 million and 4.6 million barrels per day respectively. Motor gasoline inventories rose by 0.149 million barrels last week and were at the top of the average range for this time of the year. Analysts surveyed by Bloomberg expected a 1.1 million barrels increase. Meanwhile, distillate fuel inventories fell by 3.14 million barrels and remained in the lower limit of the average range. Economists expected a 1.2 million decrease.

Ric Spooner, chief market analyst at CMC Markets in Sydney, said for CNBC: “The key thing at the moment is the supply situation. We saw a steep increase in stocks, which took its toll on prices.”

Oil was also pressured by a stronger dollar, which surged on Wednesday President Obama nominated the Fed stimulus program’s key architect, Janet Yellen, as the person to replace Ben Bernanke as Fed Chief after his term expires on January 31. The nomination removed some of the uncertainty that rattled the markets after the central bank refrained from trimming its $85 billion per month bond purchasing program in September and spurred bets that the Fed will maintain its accommodative policy, supporting economic growth and risk appetite.

The U.S. currency rebounded yesterday after hovering for several sessions above its 8-month low. The dollar index, which measures the greenbacks strength against six major counterparts, traded at 80.60 at 6:57 GMT, up 0.20% on the day. The December contract held in range between days high of 80.68, the strongest level since September 26, and days low at 80.45. The U.S. currency gauge rose by 0.5% on Wednesday and increased its weekly advance to over 0.4% after rising on Thursday.