London, UK | — Oil prices rose on Tuesday thanks to a weakened dollar, supply disruption in Libya, and the latest comments from officials suggesting that oil cartel OPEC could extend its deal to cut global production.
But crude futures were weighed down by a resurgence in US shale oil production and the expectation that inventories in the country would, once again, build, illustrating the persistent global supply overhang that has depressed prices for three years.
Prices for front-month Brent crude futures, the international benchmark for oil, had gained 48c from their last close to $51.23 a barrel by 9.10am GMT. In the US, West Texas Intermediate (WTI) crude futures were up 48c at $48.21 a barrel.
Traders said Brent rebounded from testing a $50 a barrel support on Monday. Futures were supported by a weak dollar, which can attract investors to safer commodity markets while making oil cheaper for countries using other currencies.
The dollar was slightly stronger against a basket of other leading currencies on Tuesday but is still trading at levels not seen since last November.
Both Brent and WTI jumped more than 20c a barrel after it emerged that Libya’s oil output has fallen by roughly a third, or 252,000 barrels per day (bpd) because armed factions blocked production at the El Sharara and Al Wafa oil fields.
The contracts reacted positively after Iranian oil minister Bijan Zanganeh said the global oil-cut agreement between the OPEC and other major producers was likely to be extended. “Crude oil challenged support again yesterday, but once again found a bid, this time supported by the bounce in stocks,” said Ole Hansen, Saxo Bank head of commodity strategy.
“Supply remains in focus ahead of the US Energy Information Administration (EIA) report where an increase of more than 322,000 barrels will see Cushing hit a record. As a result of rising production and inventories, we are seeing WTI’s discount to Brent widen to the highest since 2015.” Rising stocks at Cushing tend to depress the US benchmark price, widening its discount to Brent, which in turn makes US crude oil attractive to importers. This undermines any OPEC efforts to cut supplies.
A record amount of US crude oil has found its way to Asia and other destinations this year and more is expected to be shipped out as traders take advantage of arbitrage opportunities by sending excess US crude into regions where it can find buyers.