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Crude taken down by Libya supply hopes, US stockpile expectations

Source: Denver International Airport

Benchmark Brent oil rose slightly on Tuesday after news that Ukrainian armed forces launched military operations in the east of the country, but futures encountered headwinds from the prospect of rebounding oil exports from Libya and the expiration of the front-month contract.

Russia declared Ukraine on the brink of civil war as Kiev began a "special operation" against pro-Russian separatists in the eastern town of Kramatorsk and retook a main airfield there.

Brent rose to near a six-week high Monday after Western powers agreed to expand sanctions against Russia over Ukraine, and Tuesday's rally in Brent's June contract helped pull U.S. crude higher.

Brent crude pared early losses, dropping 20 cents to under $109, after rising almost $2 on Monday. U.S. oil slipped 30 cents to settle at $103.75, pressured by expectations of a rise in U.S. crude inventories.

But Brent's gains were capped and U.S. crude held in negative territory as the gradual reopening of several Libyan oil ports that had been blockaded by rebel groups since July added to the global oil supply. An oil tanker was due to load on Tuesday from the recently reopened Hariga port, the first exports after a deal to end months of closures.

"The Libya news is bearish since the port opening is going to affect the near-term supply...and that outweighs the events in Ukraine," said Joseph Posillico, senior vice president of energy derivatives at Jefferies Bache in New York.

Also pressuring U.S. crude oil prices, domestic crude inventories likely rose last week by 1.8 million barrels, according to a Reuters poll taken ahead of inventory reports due later on Tuesday and Wednesday.

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