- U.S. crude rose above $75 a barrel for the first time since November 2014 on Tuesday, after Libya declared force majeure on some of its crude exports.
- Production at Syncrude Canada's 360,000 barrels per day (bpd) oil sands facility near Fort McMurray, Alberta, was hit by a power outage last month.
- The Organization of the Petroleum Exporting Countries pumped 32.32 million bpd in June, a Reuters survey showed, up 320,000 bpd from May.
Oil prices steadied on Tuesday afternoon, following a volatile session that saw U.S. crude top $75 a barrel for the first time since November 2014 before falling sharply and suddenly in mid-morning trading.
The American benchmark broke through the threshold as the market grew increasingly concerned about a shortage of oil amid supply disruptions in Libya and Canada and as tough U.S. sanctions on Iran loom.
"You're starting to hear talk of oil shock. There is little confidence in the market that we're going to escape an ever-tightening supply and demand balance now," said John Kilduff, founding partner at energy hedge fund Again Capital.
U.S. West Texas Intermediate crude rose to a session peak of $75.27 a barrel, the highest level since Nov. 25, 2014, and then tumbled to a low of $72.73. The contract ended Tuesday's session up 20 cents higher at $74.14.
Benchmark Brent crude oil was up 46 cents at $77.76, after topping out at $78.55 by 2:29 p.m. ET.
Exacerbating those surprise events, a Trump administration official told reporters that American diplomats are pushing oil buyers to cut off all purchases of Iranian crude by the beginning of November. A senior State Department official reaffirmed the tougher-than-anticipated policy on Monday.
After oil prices turned lower, analysts pointed to a report from Saudi Arabia's state media agency saying the kingdom's Council of Ministers, chaired by King Salman bin Abdulaziz, is ready to deploy the nation's spare capacity to add more oil to the market. President Donald Trump has asked the king to raise output by as much as 2 million barrels per day.
OPEC, the Saudi-dominated group of 14 oil producers, reached an agreement with Russia and other exporters last month to raise output by about 1 million bpd.
The Organization of the Petroleum Exporting Countries pumped 32.32 million bpd in June, a Reuters survey showed, up 320,000 bpd from May. The June total is the highest since January 2018. The UAE's Abu Dhabi National Oil Co (ADNOC) said on Tuesday it could increase production by several hundred thousand barrels per day if needed.
Higher output from Saudis Arabia, Russia and the United Arab Emirates, along with surging U.S. exports, will likely compensate for disruptions in Libya, Venezuela and Iran, said Roberto Friedlander, head of energy trading at Seaport Global Securities.
"We're overbought at the top of the range here and WTI has to roll over towards $68 to $71. I'm a big believer that we are going to see $62 to $63 before we see $80," he said.
Morgan Stanley, takes the opposite view, saying it expects the market to be undersupplied by 600,000 bpd over the next six months. On Monday, it raised its forecast for Brent crude to $85 a barrel for the second half of 2018, up $7.50 from its previous estimate.
The bank changed its outlook after reassessing the impact of U.S. sanctions on Iran's exports, saying it now expects the shipments to fall by 1.1 million bpd by year end. It previously saw the sanctions wiping out 700,000 bpd through 2019.
"Over the course of last week, downside risk to future Iranian oil supply has increased rapidly," said Martijn Rats, global oil strategist and head of the bank's European oil and gas equity research.
Morgan Stanley also believes Libya and Angola will also see production drop more than expected, offsetting top exporter Saudi Arabia's ability to balance the market by increasing its output.
On Tuesday, Libya declared force majeure on exports from two critical ports, Zueitina and Hariga, that together handle about 850,000 bpd of oil shipments. Oil producers declare force majeure when forces beyond their control disrupt oil supplies. A dispute between rival political factions with competing claims on Libya's exports is at the heart of the latest disruption.
That added to the loss of 360,000 bpd from Canada's Syncrude facility in Alberta, which supplies the United States with heavy crude and suffered a power outage last month. The outage is not expected to be resolved until July.
Analysts say the Canadian outage contributed to a big drop in U.S. stockpiles of crude stockpiles last week, which is bullish for oil prices. U.S. stocks are expected to fall by another 3.3 million barrels this week, according to a Reuters survey.
The American Petroleum Institute will release its reading on U.S. inventories later on Tuesday, while official figures from the U.S. Energy Information Administration will come out one day late on Thursday due to the July 4th holiday.
— Reuters contributed to this story.