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Investing.com-- Oil prices rose slightly in Asian trade on Thursday, extending strong gains from the prior session as the shutdown of Libya’s biggest oilfield fueled more concerns over tight supplies.
The shutdown came amid continued disruptions to shipping activity in the Red Sea, which markets feared could disrupt global oil supplies. The Israel-Hamas war also now appeared to have spilled over into Lebanon, marking an escalation in the conflict.
Disruptions to Middle Eastern crude supply were a key point of support for oil prices in recent sessions, particularly on the grounds that they could result in tighter global oil markets in 2024.
Expectations of tighter supplies were further fueled by industry data showing a substantially bigger-than-expected draw in U.S. inventories over the final week of 2023. But the data also showed an outsized build in gasoline and distillate stocks, indicating that U.S. fuel demand remained weak.
Brent oil futures expiring in March rose 0.3% to $78.47 a barrel, while West Texas Intermediate crude futures rose 0.5% to $73.20 a barrel by 20:10 ET (01:10 GMT).
Both contracts surged around 3% on Wednesday, following news of the Libyan shutdown. Protests over high fuel prices caused Libya’s El Sahara oil field to halt production, with the field producing about 300,000 barrels per day.
US inventories shrink more than expected, but fuel demand seen weak- API
Data from the American Petroleum Institute (API) showed that U.S. oil inventories fell by 7.4 million barrels in the week to December 29, far more than expectations for a draw of about 3 million barrels.
But the API data also showed an over 6 million barrel build in gasoline and distillate inventories, suggesting that demand in the world’s biggest fuel consumer remained weak at the end of 2023.
While a bulk of this slowdown can be attributed to weak seasonal trends- particularly the winter season dissuading road travel, a mix of high interest rates and cooling economic activity may also be weighing on fuel demand.
The API data usually heralds a similar reading from official U.S. inventory data, which is due later on Thursday.
Despite strong gains on Wednesday, oil prices were still nursing steep losses in 2023. Brent and WTI lost over 10% apiece in the past year on growing fears of a demand slowdown, particularly due to economic pressure from high interest rates.
Purchasing managers index (PMI) data released on Wednesday showed a sustained contraction in U.S. manufacturing activity. Crude prices had also marked a weak start to 2024 following dismal PMI data from top importer China.
Despite Wednesday's bounce, further gains in oil were held back by a sharp recovery in the dollar, as markets awaited fresh cues on monetary policy from nonfarm payrolls data due this Friday. Some doubts over the timing of U.S. interest rates also appeared to be creeping into markets, with the minutes of the Fed's December meeting providing few cues.
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