Oil rises 1% to $56.77 per barrel as Middle East tensions linger

An oil pumpjack operates near Williston, North Dakota.
Andrew Cullen | Reuters

Oil prices were up on Tuesday as expectations of lower U.S. crude supplies were offset by weaker demand forecasts and the full restart of Libya's largest oil field.

Libya's Sharara oil field returned to normal production on Tuesday, pressuring prices that rallied a day earlier on fears the tanker capture could disrupt supplies in the heavily trafficked Strait of Hormuz.

Brent crude rose 67 cents to $63.94 a barrel on Tuesday. West Texas Intermediate climbed 1% or 64 cents to $56.77.

"The situation with Iran seems contained for now, and Libya's full supply is coming back," said Bill Baruch, president at Blue Line Futures LLC in Chicago.

In the Middle East, "tensions are ever-present but it hasn't moved the market much because everyone is waiting on U.S. supply data," Baruch said.

Oil may gain further support if forecasts are correct for another drop in U.S. crude inventories. Analysts expect a 3.4 million-barrel draw in the latest week. 1/8EIA/S 3/8

The American Petroleum Institute, an industry group, releases its inventory report Tuesday at 4:30 p.m. EDT (2030 GMT). The U.S. government's official figures are due Wednesday morning.

A weaker outlook for oil demand because of slowing economic growth also weighed.

On Tuesday, the International Monetary Fund cut its forecast for global growth, warning that further U.S.-China tariffs or a disorderly exit for Britain from the European union could weaken investment and disrupt supply chains. 1/8L2N24O0O8 3/8 On Sunday, Goldman Sachs lowered its 2019 oil demand projection, joining other forecasters. 1/8IEA/M 3/8

"Although prices had been driven by supply developments in the first half of the year economic considerations are making oil bulls careful this month," said Tamas Varga of oil broker PVM.

Middle East tensions have periodically bolstered prices as the United States has aimed to cut off Iran's oil exports. Also adding support have been supply cuts led by the Organization of the Petroleum Exporting Countries. Still, the International Energy Agency said supply remains plentiful due to strong growth in output from the United States and other non-OPEC producers.

"The market has been quite measured throughout all of this," said John Kilduff, partner at Again Capital LLC in New York. "There's some fatigue in the market when these things erupt."

Libya's National Oil Corporation said crude production has returned to normal at the Sharara oil field, which was pumping at a rate of 290,000 barrels per day (bpd) before it was shut late last week.