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|12 December, 2018

Oil rises to $61 on Libyan supply cut, U.S. inventories

International Brent crude oil futures were at $60.89 per barrel, up 69 cents, or 1.15% from their last close

Image used for illustrative purpose. Crude oil extraction pump pulling crude oil up to the surface and pushing it into pipelines in the Permian Basin in West Texas.

Image used for illustrative purpose. Crude oil extraction pump pulling crude oil up to the surface and pushing it into pipelines in the Permian Basin in West Texas.

Getty Images

LONDON- Oil rose above $61 a barrel on Wednesday, supported by an industry report that showed a drop in U.S. crude inventories, a cut in Libyan exports and an OPEC-led deal to trim output.

The American Petroleum Institute (API) said on Tuesday that U.S. crude inventories dropped by 10.2 million barrels last week, more than analysts had forecast. Official inventory figures are due later on Wednesday. 

Brent crude futures rose $1.08 to $61.28 by 1233 GMT, while U.S. futures were last up $1.02 to $52.67.

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The oil price has fallen by a third since the start of October, when it hit a four-year high above $87. It is set for its biggest quarterly slide since the fourth quarter of 2014.

"The oil market is regaining further ground this morning in the wake of a bullish API report," Stephen Brennock of oil broker PVM said, although he also sounded a note of caution.

"After all, the fundamental outlook in early 2019 is still plagued by a supply surplus and is therefore not conducive for a sustained price rally."

Oil has been supported this week by a drop in supply from Libya, which declared force majeure on exports from its largest oilfield on Sunday after tribesmen and state security guards seized the facility.

The Libyan outage follows last week's decision by the Organization of the Petroleum Exporting Countries and some non-OPEC producers including Russia to cut supply by 1.2 million barrels per day (bpd) for six months from Jan. 1.

"The OPEC+ deal from last week will allow more of a bullish position to be taken up by some market participants from this point," analysts at JBC Energy said in a report.

"The crude picture at least looks somewhat firmer for the next six months than it did previously."

While these supply cuts supported prices, a weaker economic outlook and higher production elsewhere kept gains in check.

Undermining the OPEC-led supply cuts is soaring output in the United States, which is set to end 2018 as the world's top oil producer, ahead of Russia and Saudi Arabia. 

"We are quite confident that OPEC+ will be successful in tightening up the front end of the oil market thus keeping the Brent crude oil one-month contract in $60+ a barrel territory over the next six months," SEB commodities strategist Bjarne Schieldrop said.

"Investors and producers however fear a tsunami of additional U.S. shale oil supply in late 2019 and 2020 as new pipelines are installed from the Permian to the U.S. Gulf."

(Additional reporting by Henning Gloystein Editing by Dale Hudson and Edmund Blair) ((alex.lawler@thomsonreuters.com; +44 207 542 4087; Reuters Messaging: alex.lawler.reuters.com@reuters.net))

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