Oil prices rise on middle east gulf tensions; Libya field resumes output

Oil prices rose on Monday on concerns that Iran’s seizure of a British tanker last week may lead to supply disruptions in the Middle East Gulf, although gains were capped as Libya resumed output at its largest oil field.

“Falling global demand and rising U.S. stockpiles have helped turn oil charts very bearish, but that may not last as tensions remain high in the Persian Gulf,” Edward Moya, senior market analyst at OANDA in New York, said in a note.

Iran’s Revolutionary Guards said on Friday they had captured a British-flagged oil tanker in the Gulf in response to Britain’s seizure of an Iranian tanker earlier this month.

The move has increased the fear of potential supply disruptions in the Strait of Hormuz at the mouth of Gulf, through which flows about one-fifth of the world’s oil supplies.

Britain was weighing its next moves on Sunday, with few good options apparent as a recording emerged showing that the Iranian military defied a British warship when it boarded and seized the ship.

Meanwhile, a senior United States administration official said on Friday the U.S. will destroy any Iranian drones that fly too close to its ships, a day after the U.S. said one of its navy ships had “destroyed” an Iranian drone in the Strait of Hormuz. Iran said it had no information about losing a drone.

Crude oil supply outages and curbs also helped lift prices higher.

“Oil prices got a small boost this morning after Libya’s (NOC) declared force majeure on Sharara crude loaded at Zawiya port,” said Stephen Innes, managing partner at Vanguard Markets.

The Sharara oilfield resumed production at half capacity on Monday after being shut down since Friday, which caused an output loss of about 290,000 barrels per day (bpd).

Meanwhile, data late last week showed shipments of crude oil from Saudi Arabia, the world’s top oil exporter, fell to a 1-1/2 year low in May.

Speculative money is flowing back into the oil markets in response to the escalating dispute between Iran and the United States and other western nations playing out in the Gulf waters along with the signs of falling supply.