Oil prices rise 3% on Libya output cuts, Middle East conflict concerns

Oil prices closed up 3% on Monday as Libya’s production cuts sparked supply concerns amid reports of escalating conflict in the Middle East, according to Reuters.

Brent crude, the international benchmark, closed at $81.19 a barrel, while WTI, the U.S. oil benchmark, closed at $77.42 a barrel.

Both benchmarks were up more than 2% on Friday.

Dennis Kissler, senior vice president of trading at BOK Financial, said “short-term buying appears to be justified,” citing tensions in the Middle East, production disruptions in Libya and weak oil inventories at Cushing, Oklahoma, a major U.S. storage hub.

Libya’s oil production in July was about 1.18 million barrels per day, OPEC said, citing secondary sources.

“The biggest risk to the oil market could be a further decline in Libyan oil production due to political tensions in the country, with production potentially falling to zero from its current level of 1 million barrels per day,” said Giovanni Staunovo, an analyst at UBS.

A long-awaited missile attack by the Iran-backed Hezbollah movement appears to have been largely thwarted by a preemptive Israeli strike on southern Lebanon.

Meanwhile, the Pentagon said Monday that the United States still believes the threat of an attack on Israel by Iran and its allies remains.

Meanwhile, crude inventories at Cushing, the pricing point for U.S. crude futures, fell to a six-month low.

U.S. crude inventories are expected to have fallen by about 3 million barrels last week, a Reuters poll showed.

Investors are wary of moves by OPEC and its allies, a group known as OPEC+, to increase output later this year.

On the demand side, mounting signs of weakening growth and emerging risks in the labor market cast a shadow over a gathering of global policymakers at the Federal Reserve’s annual meeting in Jackson Hole, highlighting a shift in the trajectory of monetary policy as central banks in the United States and Europe eye rate cuts.

However, San Francisco Federal Reserve Bank President Mary Daly said on Monday it was hard to imagine anything that would prevent a rate cut in September from the current range of 5.25%-5.50%.