Oil rises to $110 on return of Libyan supply worry

Crude oil gained on Thursday, reaching $110 per barrel, after the seizure of Libya’s prime minister punctured confidence that its oil exports would return smoothly to normal.

Brent futures were 85 cents higher at $109.91 per barrel at 1033 GMT, after having earlier hit $110.14.

Libya’s oil output has risen to 700,000 barrels per day, after falling at mid-year to its lowest since the country’s 2011 civil war as strikes, militias and political activists blocked most oilfields and ports.

Investors were looking to when the rest of the oil production – total capacity is over 1.5 million bpd – would be back on stream.

“Markets were not anticipating a quick restart of the 0.9 million bpd missing crude oil production from Libya but a restart was a bearish flag,” said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland.

“That flag can now be pushed further away in time.”

U.S. oil was up 47 cents at $102.08 per barrel.

Price rises were tempered as the overall demand outlook still looks downbeat. OPEC further lowered the forecast demand for its crude in the fourth quarter and 2014, and said its production remained higher than next year’s global requirement despite a plunge in Iraqi and Libyan output.

FISCAL PROGRESS

Commodity and equity prices were also supported on signs of progress in Washington on ending the U.S. fiscal stalemate and averting a possible debt default.

U.S. Republicans were looking into a short-term hike in the government’s borrowing authority to buy time for talks on broader policy issues, a Republican leadership aide said on Wednesday.

Also supporting prices was renewed worry about supply from Nigeria.

Shell Nigeria said on Wednesday it had shut its Trans Niger Pipeline (TNP) after reports of leaks, deferring 150,000 barrels per day of crude oil just 10 days after the pipeline was re-opened.

“Better supplies out of Nigeria and Libya were another bearish influence but this seems not to be the case anymore,” said Christopher Bellew, broker at Jefferies Bache.

Oil recovered losses from the previous session after U.S. crude stocks rose by 6.8 million barrels in the week to Oct. 4, well above forecasts by analysts of a 1.5 million barrel increase.

Over the past three weeks, crude stockpiles have increased by a total of 14.9 million barrels, according to the U.S. Energy Information Administration, the biggest three-week increase since April 2012.