London, UK | — Oil prices extended gains on Wednesday despite industry data showing an increase in US crude inventories, lifted by supply disruptions in Libya and views that an oil cartel OPEC-led output reduction is likely to be extended.
Front-month Brent crude futures rose 41c to $51.74 a barrel by 9.29am GMT. West Texas Intermediate (WTI) crude futures were up 34c at $48.71 a barrel.
Oil production from the western Libyan fields of El Sharara and Al Wafa has been blocked by armed protesters, reducing output by some 250,000 barrels per day (bpd) and prompting the National Oil Corporation to declare force majeure on Tuesday.
“That [Libya], along with the Iranian oil minister saying there is likely to be an extension to the production cut deal, helped crude oil rally overnight,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
OPEC member Libya was excluded from the cuts, agreed late last year, as the country’s oil sector fell victim to the unrest that followed the toppling of Muammar Gaddafi in 2011.
Iranian oil minister Bijan Zanganeh said on Tuesday that the agreement between OPEC and other producers led by Russia to cut output by 1.8-million bpd in the first half of 2017 was likely to be extended.
Prices gained despite a rise last week in US crude inventories. US crude stocks rose by 1.9-million barrels to 535.5-million barrels, while gasoline and distillate stocks declined, the American Petroleum Institute said.
The US Energy Information Administration (EIA) is due to publish official US crude and fuel product data on Wednesday. As markets remain bloated half-way into the cuts, there is a broad expectation that the supply reductions will be prolonged into the second half.
The OPEC-led strategy to re-balance oil markets is not without controversy, however. As OPEC, and especially Saudi Arabia cut production, producers not participating in the accord have been quick to fill the supply gap and gain market share. In the US in particular, shale oil drillers have seized the opportunity to ramp up output and exports. As a result, China became the third-biggest overseas destination for US crude in 2016, according to EIA data, up from ninth position the previous year.