Oil prices rose to fresh two-year highs Tuesday following an explosion on a pipeline that carries oil to Libya's largest oil port.
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U.S. crude futures recently traded up $1.33, or 2.27%, to $59.80 a barrel on the New York Mercantile Exchange, on track to settle at its highest level since June 2015. Brent, the global benchmark, rose $1.50, or 2.30%, to $66.75 a barrel on ICE Futures Europe.
An explosion earlier Tuesday on a pipeline leading to Libya's largest oil port of Es Sider is expected to reduce oil production there by up 100,000 barrels a day, the country's National Oil Co. said on its website.
The company said it was investigating the causes of the incident. The radical Islamic State and other armed groups have frequently attacked oil facilities in the war-torn nation. Some press reports suggested the Libyan pipeline was sabotaged by gunmen but an NOC official said a technical accident couldn't be ruled out.
Libya's oil production has recovered to about 1 million barrels a day but analysts say it could take year before it returns to 1.6 million barrels a day, its level prior to a civil war in 2011.
A string of pipeline outages and other supply interruptions around the world have helped boost oil prices in recent months, working in tandem with rising demand and production cuts by the Organization of the Petroleum Exporting Countries and other major producers.
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And disruptions can have an outsized impact on price because the global oil glut has shrunk.
"It's one thing after another and a slight issue gets exacerbated in the market," said David Leben, director of commodity derivatives at BNP Paribas.
Earlier this month, Brent prices jumped after one of Europe's most important pipeline systems sprang a leak and had to be shut down, cutting off the flow of some 450,000 barrels-a-day of North Sea oil.
Ineos, the British chemicals and refining company that owns the line, said Tuesday that it is making good progress toward restarting the line. A small number of customers are now sending volumes through the pipeline at low rates, and Ineos said in a statement that it expects to be operating at normal rates early next year.
OPEC and other major producers, including Russia, have been curbing production all year. OPEC agreed in November to extend production cuts throughout 2018 as it targets reducing global stocks to their five-year average.
Fuel prices also vaulted higher Tuesday. A blast of icy weather is set to boost demand for heating oil even as supplies are relatively tight heading into winter. Diesel futures rose 6.48 cents, or 3.29%, to $2.0342 a gallon. Gasoline futures rose 4.53 cents, or 2.57%, to $1.8076 a gallon.
"I think a lot of this movement is driven by extreme cold weather in the next 10 days," said Donald Morton, senior vice president at Herbert J. Sims & Co., who oversees an energy trading desk. "There's no room for error in heating oil this winter."
Strong growth in U.S. shale output is helping limit gains, however. U.S. oil production hit a record high of 9.789 million barrels a day in the week ended Dec. 15, according to data published by the Energy Information Administration.
"All eyes are on shale production for the first half of 2018 and that will drive OPEC's decisions for the rest of the year," said Richard Fullarton, founder of London-based hedge fund Matilda Capital Management Ltd.
Sarah McFarlane contributed to this article.
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(END) Dow Jones Newswires
December 26, 2017 14:05 ET (19:05 GMT)