Brent Crude Climbs as Libyan Ports Remain Shut Down

Brent crude climbed the most in two weeks, widening the premium to West Texas Intermediate for a second day, after Libyan rebels refused to hand over control of three oil ports to the government.

The European benchmark grade advanced 1.5 percent in London while WTI gained 0.9 percent in New York. Ibrahim Al Jedran, a Libyan rebel leader, said at a news conference yesterday that the harbors of Es Sider, Ras Lanuf and Zueitina will remain shut. Oil increased with equities after reports showed that euro-area manufacturing rose this month and U.S. industrial output gained in November.

“The failed reopening of the Libyan oil ports is giving Brent a boost,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The improving economic data points to increasing oil demand.”

Brent oil for January settlement, which expired today, increased $1.64 to end the session at $110.47 a barrel on the London-based ICE Futures Europe exchange. The more active February contract gained $1.09, or 1 percent, to settle at $109.41. The volume of all futures traded was 26 percent below the 100-day average at 2:49 p.m. New York time.

WTI for January delivery rose 88 cents to settle at $97.48 on the New York Mercantile Exchange. The volume of all futures traded was 23 percent lower than the 100-day average. The U.S. benchmark crude closed at a $12.99 discount to Brent, up from $12.35 at the close on Dec. 13.

Tumbling Production

The European benchmark slid 2.5 percent last week on speculation that the ports, shut since July, would be reopened. Output tumbled to 210,000 barrels a day last month, the least since 2011. More than two years after the war that swept the late Muammar Qaddafi from power, Libyan government efforts to revive the oil industry are being stymied by feuding militias and protests.

“Brent is up on the news from Libya and that’s spilled over to WTI,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Brent fell and the spread with WTI narrowed last week on expectations that the ports would reopen. Now that we don’t have an agreement, we’re seeing the reverse.”

Libya produced 1.55 million barrels a day in 2010, data compiled by Bloomberg show, and planned to raise output to 2 million barrels a day through increased exploration. The country is exporting 110,000 barrels a day from five terminals under government control. Another terminal, Hariga in the east, is under partial government control.

Strife in the North African country will keep 1 million barrels a day off the global market through 2014, the U.S. Energy Information Administration said in its monthly Short-Term Energy Outlook on Dec. 10.

Rejected Accord

Al Jedran said authorities rejected demands to share oil revenue with his self-proclaimed government and signaled that the eastern region known as Cyrenaica may sell crude without approval. Saleh Al Etweish, the tribal mediator who is trying to end the stalemate, said the government has agreed to Al Jedran’s conditions to set up a committee to monitor oil sales and review past contracts.

“The market thought the recent suggestions of a deal were the most realistic Libyan negotiations have been since July,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a London-based consultant who said last week the terminals would probably stay closed.

Euro-area factory output climbed to a 31-month high in December, led by Germany, a survey from London-based Markit Economics showed. The index based on a survey of purchasing managers in the manufacturing industry increased to 52.7, a 31-month high, from 51.6 in November.

U.S. Manufacturing

Another report showed U.S. industrial production climbed in November by the most in a year. Output at factories, mines and utilities rose 1.1 percent after a revised 0.1 percent gain in October that was previously reported as a decline, a report from the Federal Reserve showed today in Washington. The index of industrial production rose to 101.3, exceeding for the first time its pre-recession peak in December 2007.

The Standard & Poor’s 500 Index climbed 0.7 percent and the Dow Jones Industrial Average 0.9 percent.

U.S. crude oil production will approach a record by 2016, climbing to the highest level in 46 years as rising output from shale formations lifts domestic supplies, reducing the nation’s need for foreign oil, according to the Energy Information Administration’s Annual Energy Outlook for 2014 released today in Washington.

Domestic crude output will grow annually by about 800,000 barrels a day to 9.5 million in 2016, nearing the record level of 1970, the EIA said today.

Implied volatility for at-the-money WTI options expiring in February was 15.6 percent, down from 16.5 percent Dec. 13, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 369,246 contracts at 2:50 p.m. It totaled 565,130 contracts in the previous session, 0.9 percent below the three-month average. Open interest was 1.65 million contracts.

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