Oil Falls as Libya Production Rebound Seen Offsetting OPEC Curbs

(Bloomberg) -- Crude dropped as the reopening of Libya's biggest oil field countered OPEC's optimism about production cuts.

Futures slipped 0.7 percent in New York after rising 5.5 percent last week. Libya's output rose to about 660,000 barrels a day, a person familiar with the matter who asked not to be identified said. OPEC Secretary-General Mohammad Barkindo said Sunday that he is “cautiously optimistic that the market is already rebalancing,” while data on Friday showed the number of active oil rigs in the U.S. rose to the highest since September 2015. Prices also fell as the dollar climbed and equities slipped.

Barkindo's comments support the Organization of Petroleum Exporting Countries' commitment to drain swollen inventories before the group meets May 25 in Vienna. Kuwait and other producers from the group joined with non-member Oman to voice support for an extension of the six-month deal to cut output that began in January. The effects of the curbs have been mitigated by a surge in U.S. supply and production.

"The rebound of Libyan production stalled the rally," Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by telephone. "We were rallying on the signs that the OPEC production agreement will be extended."

West Texas Intermediate for May delivery dropped 36 cents to close at $50.24 a barrel on the New York Mercantile Exchange. Prices gained $2.63 last week to settle at $50.60. Total volume traded was about 23 percent below the 100-day average.

Brent for June settlement dropped 41 cents to $53.12 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.41 premium to June WTI.

Libyan Supply

Libya's output had dropped to about 500,000 barrels a day last week when production was halted at the Sharara field. Libya has sought to boost crude exports after fighting among rival militias hobbled oil production following the overthrow in 2011 of Moammar Al Qaddafi.

See also: Oil investors slow bearish bets as OPEC seen extending cuts

OPEC's progress in curbing the global glut relied on contributions from Libya and Nigeria in March, two countries that are exempt from output cuts, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. The group pumped 32.095 million barrels a day, down 200,000 a day from February. Supply from Nigeria and Libya fell by a combined 210,000 barrels a day to 1.55 million and 620,000 a day, respectively.

Rigs targeting crude in the U.S. increased for an 11th week to 662, the longest run of gains since 2011, according to data from Baker Hughes. American oil production expanded for a sixth week to 9.15 million barrels a day in the week ended on March 24, the highest level since February 2016, according to Energy Information Administration data.

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To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Carlos Caminada, Richard Stubbe