By Robert Harvey
LONDON (Reuters) -Oil prices rose nearly 3% on Monday on reports of a near total production stoppage in Libya, adding to earlier gains on concerns that escalating conflict in the Middle East could disrupt regional oil supplies.
Brent crude futures climbed $2.30, or 2.91%, to $81.32 a barrel by 1148 GMT, while U.S. crude futures were at $77.05 a barrel, up $2.22, or 2.97%.
Brent’s intra-day high of $81.35 a barrel is the highest the contract has traded in 11 days.
Prices jumped after Libya’s eastern-based government announced the closure of all oil fields on Monday, halting production and exports.
The Benghazi government is not internationally recognised but controls most of Libya’s oilfields. The Tripoli-based National Oil Corporation, which controls oil resources, has not yet provided confirmation of the news.
Libyan factions are in a power struggle over control of the central bank and oil revenue.
“The biggest risk for the oil market is probably a further drop in Libyan oil production due to political tensions in the country, with a risk that production could fall from current levels of 1 million barrels per day to zero,” said analyst Giovanni Staunovo of Swiss bank UBS.
“We are potentially looking at a big chunk of Libya’s production going offline for a while,” Saxo Bank analyst Ole Hansen added.
Oil prices opened higher after Hezbollah fired hundreds of rockets and drones into Israel on Sunday and Israel’s military said it struck Lebanon with around 100 jets to thwart a larger attack, with one of the biggest clashes in more than 10 months of border warfare raising fears of wider conflict in the region.
“Geopolitical risk factors will likely influence the oil market significantly,” said Kelvin Wong, a senior market analyst at OANDA in Singapore.
Monday’s gains come after both oil benchmarks gained more than 2% on Friday when U.S. Federal Reserve Chair Jerome Powell endorsed the start of interest rate cuts.
“The prospect of easing monetary policy boosted sentiment across the commodity complex,” ANZ analysts said in a note.
Investors remain cautious over the actions of the Organization of Petroleum Exporting Countries (OPEC) and its allies, or OPEC+, which has plans to raise output later this year, said Priyanka Sachdeva, senior market analyst at Phillip Nova.
Elsewhere, Russia’s largest oil refinery in Omsk, Siberia, said a fire on Monday will not affect its production plan and it is operating as usual. The reason for the fire was not immediately clear.
This post is originally published on INVESTING.
