US crude surges 2.6%, settling at $59.97, best close since June 2015 after Libya pipeline blast

  • An explosion at a Libyan oil pipeline feeding Es Sider terminal supported crude prices.
  • The North Sea Forties oil pipeline is being tested after repairs.
  • The U.S. oil drilling rig count is holding steady.
A pump jack and pipes at an oil field near Bakersfield, California.
Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil prices soared to two-and-a-half year highs in light trading volume on Tuesday, boosted by news of an explosion on a Libyan crude pipeline as well as voluntary OPEC-led supply cuts.

U.S. West Texas Intermediate (WTI) crude futures ended Tuesday's session up $1.50, or 2.6 percent, at $59.97, posting its best closing price since June 24, 2015. The contract earlier touched $60 for the first time in 2½ years.

Brent crude futures, the international benchmark for oil prices, rose $1.80, or 2.8 percent, to $67.05 a barrel by 2:29 p.m. (1929 GMT). It hit an intraday high of $67.10, its strongest level since May 2015.

Armed men blew up a pipeline pumping crude oil to the port of Es Sider on Tuesday, cutting Libya's output by up to 100,000 barrels per day (bpd), according to military and energy sources.

The state-run National Oil Corporation (NOC) said in a statement that output had been reduced by 70,000 to 100,000 bpd. The cause of the blast was unclear, it added.

The North African country's output had been recovering in recent months after being held down for years amid armed conflict and unrest.

The impending restart of a key North Sea pipeline, Forties, limited the rally. The pipeline is being tested after repairs and full flows should resume in early January, its operator said on Monday.

"Keep in mind that the field and pipeline are old and it may have issues and it's probably why the market isn't selling off," said Scott Shelton, broker at ICAP in Durham, North Carolina.

Trading activity was thin because of the Christmas holiday in many countries. Just 50,000 contracts of front-month Brent crude futures changed hands on Tuesday, well below the typical daily average of more than 250,000 contracts.

Brent has risen 17 percent while U.S. crude has rallied about 11 percent in 2017. The Organization of the Petroleum Exporting Countries, plus Russia and other non-members, have been withholding some output since Jan. 1 to get rid of a glut.

The producers have extended the supply cut agreement to cover all of 2018.

Iraq's oil minister said on Monday there would be a balance between supply and demand by the first quarter, leading to a boost in prices. Global oil inventories have decreased to an acceptable level, he added.

That is earlier than predicted in OPEC's latest official forecast, which calls for a balanced market by late 2018.

U.S. shipments to China, one of the biggest oil consumers in the world, have benefited from the OPEC-led output cuts. Russia, however, was China's largest crude oil supplier for the ninth month in a row in November, also topping Saudi Arabia for the year so far, Chinese customs data showed on Tuesday.

While the OPEC action has lent support to prices all year, the unplanned shutdown of the Forties pipeline on Dec. 11 pushed Brent to its 2-1/2 year high.

Forties plays an important role in the global market as it is the biggest of the five North Sea crude streams underpinning Brent, the benchmark for oil trading in Europe, the Middle East, Africa and Asia.

In the longer term, efforts by OPEC and Russia efforts to prop up prices could also be undermined by U.S. production, which has soared by more than 16 percent since mid-2016, fast approaching 10 million bpd.

The U.S. rig count, an early indicator of future output, held at 747 in the week to Dec. 22, according to the latest weekly report by Baker Hughes.

— CNBC's Tom DiChristopher contributed to this report.