Oil Prices Surge on Supply Disruptions and Fed Rate Cut Hopes

Oil prices jumped over $1 a barrel on Thursday as disruptions in Libyan oil supplies and planned output cuts in Iraq spurred concerns about tightening markets.

By midday EDT, U.S. West Texas Intermediate (WTI) crude futures had risen $1.35, or 1.8%, to $75.85 a barrel. Brent crude, the global benchmark, was up $1.07, or 1.4%, reaching $79.72 a barrel.

In Libya, political turmoil has halted oil exports at several key ports, cutting the country’s output by approximately 700,000 barrels per day. Giovanni Staunovo, an analyst at UBS, noted, “With Libyan exports facing interruptions and export terminals closed, the Atlantic basin will likely see tighter supply.”

Adding to the upward pressure, Iraq announced plans to reduce its oil production in September. The country will lower its output from 4.25 million barrels per day in July to between 3.85 and 3.9 million barrels per day, as part of its commitment to the Organization of Petroleum Exporting Countries (OPEC) and its allies. Iraq’s quota is 4 million barrels per day.

Staunovo highlighted that the potential for reduced output and Iraq’s cancellation of an export cargo are driving up oil prices, though many traders are waiting to see actual reductions in exports.

Oil prices also gained support from expectations that the U.S. Federal Reserve might cut interest rates in the near future. Atlanta Federal Reserve President Raphael Bostic hinted that rate cuts could be on the horizon due to falling inflation and rising unemployment.

Despite these gains, oil prices had dipped more than 1% in the previous session, following data showing U.S. crude inventories fell by 846,000 barrels to 425.2 million barrels, a smaller decrease than analysts had forecast. Additionally, total oil product inventories in Europe’s Amsterdam-Rotterdam-Antwerp (ARA) hub increased by 1.1% this week, according to Insights Global.

Overall, market focus has shifted from weak demand signs to supply disruptions and monetary policy expectations, boosting oil prices.