Brent advances on Libya unrest, premium over WTI at seven-month high

Brent rose more than 1% on Wednesday as ongoing protests in Libya continued to fuel concern over supplies from Africas biggest crude reserves holder, offsetting recently arisen speculations for an earlier-than-expected Fed tapering. Expectations the American Petroleum Institute and the EIA will report U.S. crude reserve rose for an eight consecutive week last week to the highest since June pressured the market and widened Brents premium to WTI to a seven-month high.

On the New York Mercantile Exchange, WTI crude for delivery in December traded at $93.74 per barrel at 14:29 GMT, up 0.78% on the day. Prices shifted in a days range between days high and low of $93.80 and $92.93 a barrel. The American benchmark slumped 2% on Tuesday, the most in more than a month, but pared its weekly decline to 0.6% on Wednesday.

Meanwhile on the ICE, Brent futures for settlement in January rose by 0.98% to $106.57 per barrel by 14:34 GMT. Prices surged to a session high of $106.90, near Tuesdays 1-1/2-week high of $107.08 a barrel. The European benchmark lost little over 0.4% on Tuesday but extended its weekly advance to nearly 1.5% on Wednesday.

The oil market and mainly the Brent benchmark drew support as recurring protests in Libya continued to fuel concerns over supply from the African country. Ibrahim Al Awami, the Libyan oil ministry’s head of measurement and inspection, said earlier in the day for Bloomberg that protests kept the Zawiya refinery closed for more than a day, leaving its 120 000 bpd capacity offline.

Mohamed Elharari, a spokesman for state-run National Oil Corp., reported later in the day that the demonstration ended and the refinery was reopened but the closure further spurred concern the Libyan government is losing its grip. Meanwhile, BBC reported that a triple bombing during a religious festival in Iraq caused the death of eight people, adding to oils risk premium.

Andrey Kryuchenkov, an analyst at VTB Capital in London, said for Bloomberg: “There are still concerns over Libya as protests get more violent and the government is losing its grip. It does not look like they will resolve anything until next year.”

Meanwhile, other recent protests in Libya cut the countrys natural gas exports to Italy. Paolo Scaroni, chief executive at Italian oil and gas group Eni said production has fallen to 60% of capacity since the start of the year.

“Its very much out of control… Its getting worse… but I have reasons to be optimist on the future,” Paolo Scaroni said for BBC.

Heavy shooting in Tripoli last Tuesday between militias under state payroll also underlined the government’s current inability to control militia groups, fueling concern over stable supply from the African country.

Clashes continued throughout the week and escalated further on Thursday when rival militiamen fought each other using grenades and anti-aircraft weaponry in the streets of Tripoli, resulting in the death of at least one person and wounding at least twelve. According to medical sources, this was the worst battle for months, spurring further concern over supply from the holder of Africa’s biggest crude reserves.

U.S. inventories

Gains were however limited as market players expect the industry-funded API and the EIA to report that U.S. crude oil stockpiles rose for an eight straight week to the highest since June last week. According to a weekly Bloomberg News survey of eleven analysts, crude supplies may have risen by 800 000 barrels to 386.2 million in the week ended November 8, the highest level since the seven days to June 21. Motor gasoline inventories are projected to have fallen by 900 000 barrels, a fifth consecutive weekly decline, while distillate fuel stockpiles probably dropped by 1 million barrels, the poll showed.

U.S. crude inventories have soared recently as refineries were idled for maintenance works prior to the winter season. Expectations for a pick up in refinery utilization however limited losses as investors expected supplies to be drained in the upcoming weeks.

The American Petroleum Institute will release its report on Wednesday at 21:30 GMT, while EIA’s statistics will be published on Thursday due to Monday’s Veterans day holiday.