Oil jumps after unrest hits key OPEC producers Iraq and Libya

Oil jumped as rising tension in the Middle East and North Africa halted output and exports from key OPEC producers Iraq and Libya.

Futures in New York and London rose more than 1.5% following weekly declines. Iraq temporarily stopped output at an oil field on Sunday and supply from a second site is at risk as widespread unrest escalates in OPEC’s second-biggest producer. In Libya, National Oil Corp. declared force majeure after Commander Khalifa Haftar blocked exports at ports under his control.

Oil has had a rocky start to the year as tension spiked between Washington and Tehran and initial optimism over the limited U.S.-China trade deal waned amid skepticism about China’s ability to meet targets. The International Energy Agency said last week that supplies from Iraq are “potentially vulnerable” due to rising political risks in the country and the broader region.

The spike in oil prices is a rational response to the news on Libya and reflect the jumpy nature of the market, but the temporary stoppage of production in Iraq is more significant, said Michael McCarthy, chief market strategist at CMC Markets in Sydney. The $60 mark for West Texas Intermediate is providing “pretty solid resistance,” he added.

WTI futures climbed as much as $1.19, or 2%, to $59.73 a barrel on the New York Mercantile Exchange and traded at $59.11 as of 11:44 a.m. in Singapore. The contract fell 0.9% last week. Brent added as much as $1.15, or 1.8%, to $66 a barrel, before easing to $65.59.

Security guards in Iraq seeking permanent employment contracts blocked access to the Al Ahdab oil field, prompting a production halt, according to an official who couldn’t be identified. The Badra field is also at risk of closure. In Libya, output will fall by about 800,000 barrels a day, according to NOC.

Oil prices surged earlier this month after Iran retaliated for the U.S. killing of General Qassem Soleimani before retreating back to where they were in mid-December as the market shrugged off the threat of further disruptions. Members of the Organization of Petroleum Exporting Countries have spare production capacity after cutting supply to prop up prices, while non-OPEC output is expected to climb this year, adding a buffer to potential outages.

“Prices are likely to remain capped, given the market’s reactive nature to fade geopolitical risk quickly,” Stephen Innes, Asia Pacific strategist at AxiTrader, said in a note.