Oil Jumps to Highest Since Mid-2015 on Libya Blast, Saudi Budget

(Bloomberg) -- A pipeline blast in Libya and a bullish budget forecast in Saudi Arabia boosted crude prices to levels not seen since mid-2015.

West Texas Intermediate crude neared $60 a barrel as futures in New York and London reached the highest in more than two years. A pipeline run by Waha Oil that carries crude to Libya’s biggest export terminal exploded Tuesday, dropping the country’s output by 70,000-100,000 barrels a day. Meanwhile, Saudi Arabia is said to expect oil revenue to rise 80 percent by 2023.

The blast is “certainly something of a set-back because Libya had been very steadily staying online,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “It’s just a reminder of the geopolitical risk premium that’s going to haunt this market all of next year.”

Waha output fell by 60,000-70,000 barrels a day from 260,000 a day, according to a person familiar with the situation. The explosion “is a big thing” that could push prices higher still amid a tighter supply picture, said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York.

At the same time, Saudi Arabia is said to expect its first budget surplus in a decade, according to people with knowledge of the matter. Under a six-year program to balance the budget, officials predict rising prices and expanded output will push income from oil sales to 801.4 billion riyals ($214 billion) from 440 billion riyals this year, the people said.

Oil is poised for a fourth straight monthly advance as the Organization of Petroleum Exporting Countries and its partners including Russia cut output and promise to continue doing so through the end of next year. In the U.S., a rising rig count has slowed. Oil rigs are holding at 747 with no rigs added last week, according to Baker Hughes data Friday.

WTI for February delivery advanced $1.50 to settle at $59.97 a barrel on the New York Mercantile Exchange, the highest level since June 2015. Total volume traded was about 50 percent below the 100-day average.

Brent for February settlement climbed $1.77 to end the session at $67.02 a barrel on the London-based ICE Futures Europe exchange, the highest level since May 2015. The global benchmark crude traded at a premium of $7.05 to WTI.

Lost Barrels

Still, both the U.S. benchmark and its global counterpart rallied above their upper Bollinger Bands, a technical analysis of stock movements, signaling that prices might be due for a pullback.

As the year draws to a close, investors will also be focusing on the Ineos Group-operated Forties Pipeline System in the North Sea. The Kinneil facility in Scotland has restarted and is now starting to flow product through the pipeline, Ineos said in a statement Tuesday. Normal rates are expected to be reached early in the new year.

Even with the Forties Pipeline System working toward a restart, “the lost barrels have added up and we’re seeing some strength here as a result,” Kilduff said.

Oil-market news:

• Cushing, Oklahoma crude inventories dropped 590,000 barrels last week, according to a forecast compiled by Bloomberg.
• Abu Dhabi’s Adnoc will reduce February nominations for Murban and Das crudes by 20 percent each and Upper Zakum by 10 percent, according to a statement.
• Russia is keeping this year’s oil production at its 2016 level of about 10.98 million barrels a day as it complies with the OPEC deal to reduce output, Energy Minister Alexander Novak said on Rossiya 24 TV.

--With assistance from Mohammed Aly Sergie and Heesu Lee

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Reg Gale, Carlos Caminada

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