UPDATE 5-Brent rises towards $108 on Libyan supply worries

David Sheppard
Wednesday, 8 Jan 2014 | 8:29 AM ET

* Libyan rebels invite firms to buy oil from seized ports

* US crude stocks set to fall for 6th week -analysts

(Updates prices, headline)

LONDON, Jan 8 (Reuters) - Brent crude oil rose towards $108 a barrel on Wednesday, supported by new worries over Libyan supplies and expectations for a drop in crude inventories in the United States.

Tensions in Libya escalated after a heavily armed eastern autonomy group said on Tuesday it would invite foreign companies to buy oil from seized ports and protect arriving tankers, in defiance of the government in Tripoli, which has vowed to stop them.

While Libyan officials say production could recover to nearly 600,000 barrels per day (bpd) this week, any attempt to export crude from ports without Tripoli's permission could lead to clashes.

"The situation boils down to the central government being unable to access major export facilities without risking a prolonged and violent civil war and the separatists being unable to secure exports without access to naval forces," analysts at JBC Energy in Vienna said in a note.

Brent crude for delivery in February was up 52 cents at $107.87 a barrel at 1256 GMT, after settling up 62 cents on Tuesday. The contract edged above its 200-day moving average at $107.44, a key technical indicator watched by traders.

The Libyan defence ministry said it would destroy any tankers loading oil in the Cyrenaica region, where the ports are controlled by armed protesters led by tribal leader and 2011 civil war hero Ibrahim Jathran.

Libya's oil exports have fallen from more than 1 million bpd in July, when the strikes began, supporting international oil prices.

The government is expected to increase exports, however, following the restart of the 350,000 bpd El Sharara oilfield at the weekend. The first exports of crude from El Sharara since October are expected to load around Jan. 10-12 from the government-controlled port of Zawiya, traders said.

U.S crude was up 28 cents at $93.95 a barrel, after settling up 24 cents on Tuesday.

Brent's premium over U.S. crude widened to $13.91 and earlier in the session touched a month high of $13.94.


Oil prices also drew support from an expected drop in stockpiles in the United States.

U.S. commercial crude oil inventories probably fell by 900,000 barrels last week, a Reuters poll of analysts showed. This would mark a sixth straight week of declines and extend a near record drop in stocks.

"Despite ongoing strong crude production in the United States due to the shale oil and gas boom, the continuous fall in stockpiles denotes strong demand for the commodity," analysts at Phillip Futures said in a note.

Data from the American Petroleum Institute released late on Tuesday showed a much larger 7.3 million-barrel drop in crude stocks, though inventories at Cushing, Oklahoma - delivery point of the U.S. crude oil contract - rose by 1.2 million.

The market reaction was subdued, however, ahead of the more closely watched weekly inventory report from the U.S. Energy Information Administration, which is due at 1530 GMT.

Oil prices also took some support from freezing weather in North America, which boosted demand for heating oil and led to malfunctions and closures at least five refineries in the United States and Canada.

(Additional reporting by Jacob Gronholt-Pedersen in Singapore; editing by Jane Baird and Keiron Henderson)