Brent futures held near $111 a barrel on Wednesday as ongoing unrest in Libya stoked supply fears just as winter demand for oil rises, while a higher-than-expected build in U.S. crude stocks capped the gains.
Oil has stabilized after wide swings on Monday following a historic deal between world powers and Iran over its nuclear programme. While the agreement took away some of the lingering concerns of an escalation in tension in the Middle East, immediate supply issues are back in focus.
Brent crude gained 10 cents to $110.98 a barrel by 0425 GMT, after settling 12 cents lower. Brent hit a six-week high on Monday at $111.66 a barrel on winter supply concerns, after first dropping $3 on the Iran nuclear agreement.
U.S. oil fell 22 cents to $93.46, extending losses after ending 41 cents down.
“There is a possibility we may see a pop-up in prices because of technical reasons and supply. Supply capacity is one of the most important swing factors in the market,” said Ric Spooner, chief market analyst at CMC Markets.
“The Iran deal is a tangible step towards a solution, and deserves some adjustment to the risk premiums.”
Brent may rise towards $114 a barrel in the short term, while a key resistance for the U.S. benchmark is at about the $98.50-$99.50 level, Spooner said.
Libyan oil workers, civil servants and private sector staff went on strike in the port city of Benghazi as new clashes between the army and Islamists erupted.
The military is struggling to curb Islamist militants and militias who fought in the 2011 uprising against Muammar Gaddafi. The flow of oil from the OPEC member has dropped to a fraction of its capacity.
Yet, unless there is a sudden flare up of tension in the Middle East that triggers further supply concerns, Spooner said, there is a possibility both benchmarks could head towards $80-$85 if the United States pulls back on its economic stimulus.
A rollback in stimulus would suck out liquidity and bolster the dollar, weighing on commodity prices, including oil.
Data from the United States showed permits for future U.S. home construction hit a near 5-1/2-year high in October and prices for single-family homes notched big gains in September. The numbers were the latest signs of strength in the economy, despite headwinds from rising mortgage rates and last month’s partial government shutdown.
But oil, particularly the US benchmark, was under pressure as U.S. crude stocks rose sharply last week, by 6.9 million barrels, data from industry group the American Petroleum Institute showed, compared with analysts’ expectations for an increase of 600,000 barrels.
Investors are now awaiting oil stocks data from the U.S. Energy Information Administration (EIA) to gauge the demand outlook in the world’s biggest oil consumer.
A bullish target at $112.49 remains unchanged for Brent, as indicated by its wave pattern and a Fibonacci projection analysis, while signals have turned neutral for U.S. oil, according to Reuters technical analyst Wang Tao.