Oil prices rose to their highest levels in 2 1/2 years Tuesday following a pipeline explosion in Libya, the latest disruption to supplies in an already tightening market.
U.S. crude futures briefly popped above $60 before settling up 2.57% at $59.97 a barrel on the New York Mercantile Exchange, their highest settlement since June, 2015.
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Brent, the global benchmark, rose $1.77, or 2.71%, to $67.02 a barrel on ICE Futures Europe, the highest settlement since May, 2015.
Prices rose sharply after an explosion Tuesday on a pipeline leading to Libya's largest oil port of Es Sider. The incident 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 blast. 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.
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. U.S. crude futures are up 11.6% this year, and Brent is up nearly 18%.
"You've had a series of outages at a time when the market was on a tightening trajectory," said Greg Sharenow, portfolio manager at Pacific Investment Management Co. Taken altogether "we're not talking about small amount of oil," he said.
Light trading volumes following the Christmas holiday likely exacerbated the size of the move, analysts and traders said. Both oil benchmarks had their biggest single day gain since Nov. 6.
But disruptions have also been having an outsized impact on prices lately because much of the global oil glut has been sopped up.
"As the market moves closer to balance, supply outages have a much more profound impact than they did three or six months ago," said Matthew Smith, director of commodity research at ClipperData.
The pipeline explosion comes as Libyan exports were already down from last month, according to ClipperData, which tracks shipments. Flows out of northern Iraq have also been reduced following conflict between Iraq's central government and the Kurdish Regional Government.
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 in a statement Tuesday that the crack in the pipe has been mechanically repaired, and that pressure testing is under way. A small number of customers are now sending volumes through the pipeline at low rates, and Ineos said that it expects to be operating at normal levels 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 6.91 cents, or 3.51%, to $2.0385 a gallon -- the highest level since February, 2015. Gasoline futures rose 2.43 cents, or 1.38%, to $1.7866 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."
But higher prices could invite more production out of U.S. shale fields and elsewhere, something that has limited oil's rise this year.
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 15:50 ET (20:50 GMT)