Oil extended gains as tensions in the Persian Gulf remained elevated after Iran seized a British tanker, and Libyan production fell after an unidentified group reportedly shut the country’s largest field.
The UK demanded the immediate release of the Stena Impero, which was seized by the Islamic Republic in the Strait of Hormuz on Friday, but Defense Minister Tobias Ellwood said in a Sky News Interview that he wanted to de-escalate the situation. Production at Libya’s Sharara oil field was said to be gradually resuming after a force majeure was declared following the closure. Futures in New York rose as much as 1.1% after closing up 0.6% on Friday.
Oil volatility rose to a two-week high on Friday after the tanker seizure highlighted the risk of flows through the world’s most critical crude choke-point being disrupted. Meanwhile, falling production in Libya is now putting the spotlight back on supply threats after prices fell more than 8% in the four days through Thursday on signs of flagging demand in major global economies.
“Crude has been weighed down by concerns that demand is slowing, but the focus is now shifting back to supply and geopolitical risks, which should support prices for the time being,” said Kim Kwangrae, a commodities analyst at Samsung Futures Inc. in Seoul.
West Texas Intermediate for August delivery climbed 44 cents, or 0.8%, to $56.07 a barrel on the New York Mercantile Exchange as of 11:56 in Singapore after gaining as much as 60 cents earlier. The contract fell 7.6% last week.
Brent for September settlement rose 85 cents, or 1.4%, to $63.32 a barrel on the ICE Futures Europe Exchange. It closed 0.9% higher on Friday, paring the weekly loss to 6.4%. The global benchmark crude traded at a premium of $7.06 to WTI for the same month.
While the UK government has threatened Iran with “serious consequences” over the tanker seizure and advised British ships to avoid the area, ministers on Sunday sought to dial down the rhetoric. Tensions have flared after a tanker carrying Iranian oil was seized by UK forces near Gibraltar. Around a third of all seaborne crude flows through the Strait of Hormuz.
Libyan crude production fell to about 1 million barrels a day, the lowest in about five months, after an unidentified group reportedly closed a valve and shut down the North African nation’s biggest oil field. While the valve has been re-opened, the declaration of force majeure removed 290,000 barrels a day, the state-run National Oil Corp. said in a statement.