Brent crude drops 2% as Libya prepares to resume oil exports

Oil prices sank Wednesday after Libya indicated it would resume export activities at its eastern ports, helping allay fears over tight global supplies.

September Brent crude LCOU8, -2.05% dropped $1.82, or 2.3%, to $77.10 a barrel, on London’s ICE Futures exchange. August West Texas Intermediate crude CLQ8, -0.66% the U.S. benchmark, fell 62 cents, or 0.9%, to $73.49 a barrel on the New York Mercantile Exchange.

Libya’s state-run National Oil Corp. lifted force majeure on eastern oil ports on Wednesday after the ports were handed back from an armed faction, paving the way for a resumption of full production.

The move was a “major contributor” to lower prices on Wednesday, said Bjornar Tonhaugen, vice president for oil markets at consultancy Rystad Energy AS, estimating around 700,000 barrels of oil a day would eventually be returned to the global market.

“The situation in Libya is very precarious right now and challenging on the geopolitical front,” Tonhaugen said, adding that the risk of further disruptions remained.

Brent prices came within a hair of a more than three-year high this week as supply issues around the world bolstered the market. Libya’s unplanned outage was among the biggest drivers, but other factors including problems in Canada, and strikes in Norway.

Trade tensions between the U.S. and China also caught investors’ attention after the U.S. said Tuesday that additional tariffs were being considered on Chinese goods. The U.S. last week launched tariffs on $34 billion worth of Chinese exports to America.

“If the U.S. implements this additional tax on $200 billion of imported Chinese goods, it will be difficult for China not to impose greater taxes on commodities imported from the U.S.,” said Olivier Jakob, head of energy consultancy Petromatrix.

China was the second-largest importer of U.S. crude in the first quarter of the year, according to data published by the U.S. Energy Information Administration. As yet, China hasn’t imposed tariffs on U.S. crude.

The latest weekly U.S. production and stocks data is due to be published by the EIA on Wednesday, with analysts expecting crude stocks to have fallen, partly due to strong refinery demand.

Industry group the American Petroleum Institute said Tuesday that its own data for the week showed a 6.8 million barrel decrease in crude inventories.

Nymex reformulated gasoline blendstock RBQ8, -1.65% —the benchmark gasoline contract—fell 2% to $2.12 a gallon. ICE gasoil changed hands at $667.00 a metric ton, down $11.00 from the previous settlement.

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