Oil pauses gains after surging on Libyan outages, Middle East tensions

By Colleen Howe and Emily Chow

BEIJING (Reuters) -Oil prices paused their recent advances, receding on Tuesday after surging more than 7% in the previous three sessions on supply concerns prompted by fears of a wider Middle East conflict and the potential shutdown of Libyan oil fields.

Brent crude futures fell 18 cents, or 0.2%, to $81.25 a barrel at 0430 GMT, while U.S. West Texas Intermediate crude futures dropped 28 cents, or 0.4%, to $77.14 a barrel.

"Losses in oil prices may seem contained in today's session, which suggest prices taking a breather following its sharp rally over the past few days," said Yeap Jun Rong, market strategist at IG.

"With the jump in oil prices pricing for geopolitical risks in the Middle East and a production halt in Libya, market participants are now in some wait-and-see to assess further developments."

Oil markets rose sharply in the previous three sessions driven by expectations of U.S. interest rate cuts that could boost fuel demand, military assaults between Israel and Hezbollah in Lebanon over the weekend that threaten a wider Middle East conflict potentially disrupting supply from the key producing region and the potential Libyan closures.

Over that period, WTI gained 7.6% and Brent gained 7%.

Oilfields in eastern Libya that account for almost all the country's production will be closed and production and exports halted, the eastern-based administration said on Monday, after a flare-up in tension over the leadership of the central bank.

There was no confirmation from the country's internationally recognised government in Tripoli or from the National Oil Corp (NOC), which controls the country's oil resources.

The political dispute could affect almost all of the 1.17 million barrels per day of output from the North African country, based on data from the latest Reuters survey of production by the Organization of Petroleum Exporting Countries in July.

While bearish sentiments for global oil demand could weigh on oil prices, with Chinese demand having an outsized impact, the potential closure of Libya's oil fields would tighten supply and could pull the brakes on declining oil prices, said Vortexa analyst Serena Huang.

"Other oil producers would be rejoicing at the higher oil prices, and may not necessarily bring in additional supply immediately."

Oil has also been supported by the escalation of the conflict between Israel and Hezbollah, with a major exchange of missiles between them as Hezbollah attempts to retaliate for the killing of a senior commander last month.



"Markets remain on edge as skirmishes between Israel and Hezbollah intensify," ANZ analysts said in a note.

A top U.S. general said on Monday the danger of a broader war had eased somewhat but that a potential Iran strike on Israel remains a risk.

Source: Investing.com