Oil up 3% on Libya halt, Mideast escalation fears

Oil prices rose around 3% on Monday on reports of a near total production stoppage in Libya, adding to earlier gains on concerns that escalating conflict in the Middle East could disrupt regional oil supplies.

Brent crude futures climbed $2.28, or 2.89%, to $81.30 a barrel by 1316 GMT, while U.S. crude futures were at $77.30 a barrel, up $2.47, or 3.3%.

Brent’s intra-day high of $81.40 a barrel is the highest the contract has traded in 11 days.

Prices jumped after Libya’s eastern-based government announced the closure of all oil fields on Monday, halting production and exports.

The Benghazi government is not internationally recognised but controls most of Libya’s oilfields. The Tripoli-based National Oil Corporation, which controls oil resources, and the internationally recognised Tripoli government, have not yet confirmed the news. Libyan factions are in a power struggle over control of the central bank and oil revenue. “The biggest risk for the oil market is probably a further drop in Libyan oil production due to political tensions in the country, with a risk that production could fall from current levels of 1 million barrels per day to zero,” said analyst Giovanni Staunovo of Swiss bank UBS. “We are potentially looking at a big chunk of Libya’s production going offline for a while,” Saxo Bank analyst Ole Hansen added.

Investors remain cautious over the actions of the Organization of Petroleum Exporting Countries (OPEC) and its allies, or OPEC+, which has plans to raise output later this year, said Priyanka Sachdeva, senior market analyst at Phillip Nova.

“Most oil forecasters expect 2025 oil demand growth to hover around 1 million b/d. Were Libya to go down in another bout of civil war, the balances of 2025 could look very similar to this year’s despite more Saudi and Russian production,” Viktor Katona, lead crude analyst at Kpler, added.

Oil prices opened higher after Hezbollah fired hundreds of rockets and drones into Israel on Sunday and Israel’s military said it struck Lebanon with around 100 jets to thwart a larger attack, with one of the biggest clashes in more than 10 months of border warfare raising fears of wider conflict in the region.

“Geopolitical risk factors will likely influence the oil market significantly,” said Kelvin Wong, a senior market analyst at OANDA in Singapore.

Monday’s gains come after both oil benchmarks gained more than 2% on Friday when U.S. Federal Reserve Chair Jerome Powell endorsed the start of interest rate cuts.