UPDATE 9-Oil drops on Libyan export resumption hopes

Tue Oct 29, 2013 9:05pm GMT

Related Topics

* Libyan oil exports under 10 percent of capacity

* UN nuclear agency says Iran meeting productive

* Market awaits clues on policy from Federal Reserve meeting

* Coming Up: EIA inventory data Wednesday at 10:30 a.m. EDT (Adds API data in paragraph 17)

By Jeanine Prezioso

NEW YORK, Oct 29 (Reuters) - Brent oil futures fell on Tuesday, giving back some of the previous session's sharp gains, on expectations that fresh disruptions over the weekend in exports from OPEC member Libya could be short-lived.

Brent rose 2.5 percent on Monday as reports of Libya's worst civil unrest since the civil war in 2011 fueled concerns over global oil supplies.

The oil market seesawed on varying reports out of Libya.

"The Libyan deal is highly fluid," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. "Yesterday we were looking at production outages, today there's a renewed upswing in output. It just adds to the volatility."

Libya's crude oil exports have slumped to around 90,000 barrels per day (bpd), less than 10 percent of capacity, after new shutdowns that began over the weekend.

Libya's prime minister said exports from the eastern port of Hariga with a capacity of 110,000 bpd would resume after one week. The OPEC member had brought exports back to around 450,000 bpd over the last month before this latest bout of unrest.

Brent futures for December ended the day 60 cents lower at $109.01 a barrel, after trading as low as $108.45 and gaining $2.68 per barrel on Monday.

U.S. light, sweet crude for December fell 48 cents to settle at $98.20 a barrel.

European benchmark Brent's premium over U.S. benchmark West Texas Intermediate (WTI) CL-LCO1=R narrowed by around 40 cents, after widening by nearly $2 on Monday, as fears over Libyan supplies eased. It settled at $10.81.

"I think that spread is moving out again if that goes on for awhile," said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut. "Brent will catch more of a bid and WTI will be held back by the really strong production levels we see in North America."

A joint statement by the U.N. nuclear agency and Iran after talks on the Islamic state's nuclear program also helped limit gains in oil prices.

U.S. INVENTORIES

Oil markets have been balancing supply risks against rising inventories in the United States due to seasonal refining maintenance which has cut crude demand.

Refiners in the Gulf Coast refining hub were expected to return from autumn work by mid-November.

Stockpiles at the Cushing, Oklahoma, delivery point for the U.S. oil futures contract, have built over the last two weeks but are expected to decline as refiners come out of maintenance and draw on crude supplies. Declining Cushing supplies had helped support U.S. oil futures and tighten the discount to Brent crude as infrastructure has come online to deliver oil to key refining hubs.

News that BP's 405,000 bpd Whiting refinery in Indiana will not reach full production until the first quarter of 2014 may help support Brent's premium over U.S. crude in the near-term. The BP1 pipeline, that runs from the refinery to Cushing, is expected draw heavy Canadian crude away from the refinery.

Total U.S. crude oil stockpiles have risen 24 million barrels since mid-September, according to government data. U.S. oil stocks probably rose an additional 2.2 million barrels last week, while distillates and gasoline fell, a Reuters poll showed ahead of weekly data.

U.S. crude oil stocks rose by 5.9 million barrels last week while stockpiles at Cushing increased by 2.2 million barrels, data from industry group American Petroleum Institute showed on Tuesday.

The U.S. Energy Information Administration will release oil data at 10:30 a.m. EDT (1430 GMT) on Wednesday.

The market also awaited comment from the U.S. Federal Reserve's two-day policy-making meeting, expected at 2 p.m. (1800 GMT) on Wednesday. The Fed is widely expected to maintain its economic stimulus as it waits to see more evidence of how Washington's recent budget battle hurt the U.S. economy. (Additional reporting by Christopher Johnson in London and Osamu Tsukimori in Tokyo; Editing by Jim Marshall, Marguerita Choy, Chris Reese and Bob Burgdorfer)

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