Oil Trades Near Three-Year High as Libya Crisis Tightens Supply

U.S. crude traded near the highest in 3 1/2 years as disruption at Libyan ports and a plunge in American stockpiles reinforced fears of a supply squeeze.

U.S. oil stockpiles declined the most since September 2016, the Energy Information Administration reported Wednesday, just as some buyers of Iranian crude faced increasing pressure from President Donald Trump to halt imports from the Persian Gulf nation. A breakaway faction of Libya’s National Oil Corp. ordered the halt of eastern ports placed under its control by a militia leader.

“We are looking at a near-term future where supply risk will support the price,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “We have seen before the major impact that Libya can have on the market. Europe could end up having to source oil from different locations on a combination of Iran sanctions and the risk of falling Libyan production.”

Prices have been on an upward swing as Trump’s administration seeks to dissuade purchases of oil from Iran, the third-largest producer in the Organization of Petroleum Exporting Countries. The efforts to isolate and hobble the Islamic Republic have overshadowed Saudi Arabia’s plan to lift output to a record within weeks following OPEC’s agreement to relax output caps.

West Texas Intermediate crude for August delivery traded at $72.50 a barrel on the New York Mercantile Exchange, down 26 cents, at 8:52 a.m. local time. Total volume was about 14 percent below the 100-day average. The contract rose $2.23 to $72.76 on Wednesday, the highest settlement since November 2014.

The spread between front-month WTI futures and the September contract widened for a seventh day to $1.54 as shrinking inventories strengthened the market structure known as backwardation.

Brent futures for August settlement fell 5 cents to $77.57 a barrel on the London-based ICE Futures Europe exchange, after climbing $1.31 to $77.62 on Wednesday. The more active September contract was 11 cents lower at $77.35.

The global benchmark traded at a $5.04 premium to WTI for August, after closing at the narrowest since April on Wednesday. The spread has collapsed since settling at $11.43 on June 7, the widest since February 2015.

In Libya, the eastern National Oil Corp. in Benghazi ordered the halt of exports from Es Sider, the country’s biggest terminal, as well as Ras Lanuf, Zueitina, Brega and Hariga, according to company chief Faraj Said. Forces loyal to militia commander Khalifa Haftar gave eastern NOC control of the terminals earlier this month.

The internationally recognized NOC in Tripoli said it was confident the eastern splinter organization isn’t capable of exporting crude. National production has slumped to 700,000 barrels a day from about 1 million.

In the U.S., nationwide stockpiles declined by 9.89 million barrels last week, U.S. government data showed, far bigger than the 3-million-barrel fall expected in an earlier Bloomberg survey. Inventories in the storage hub at Cushing, Oklahoma, also drew down by about 2.7 million barrels last week, while exports rose, hitting 3 million barrels a day for the first time. This was despite concerns about a pipeline bottleneck in the Permian region.

“The massive $11 Brent-WTI spread in early June was probably a significant factor in the jump in exports,” said Stephen Innes, head of trading for Asia Pacific at Oanda Corp. “All the while, supplies will continue to run tight in North America. And without question, the markets are bedeviled again by enormous supply uncertainties. The oil bulls are back in charge.”

Other oil-market news:

Syncrude Canada Ltd. is said to reduce supply to customers by 92 percent in July after an unplanned outage last week, according to people familiar with the matter. Geneva Energy Markets LLC, one of the largest market-makers in crude oil and refined products, has shut due to regulatory pressures related to capital requirements for clearing banks, its top executive said.