Crude oil prices rose by more than a dollar a barrel on Thursday, August 29, as supply disruptions in Libya and plans to lower output in Iraq raised concerns of a tightening market. More than half of Libya's oil production—nearly 70,000 barrels per day—was offline today, and exports were halted at several ports amid a standoff between rival political factions.

US West Texas Intermediate crude futures were last up $1.35, or 1.8 per cent, to $75.85 a barrel. Brent crude futures were last up $1.07, or 1.4 per cent, to $79.72 per barrel during trade. Regarding domestic prices, crude oil futures last traded 1.24 per cent higher at ₹6,366 per barrel on the multi-commodity exchange (MCX).

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What's driving crude oil prices?

-Analysts said Libyan exports were holding up so far, but the closure of the export terminal should translate into a tighter Atlantic basin. Iraq plans to reduce oil output in September to compensate for exceeding the quota agreed with the Organization of Petroleum Exporting Countries and its allies (OPEC+).

-Iraq, which produced 4.25 million bpd in July, will cut output to between 3.85 million and 3.9 million bpd next month. Its agreed quota is four million bpd. The possibility of a strong output cut and Iraq's cancellation of an export cargo were likely helping lift oil prices, cautioning that most market participants will wait to see an actual drop in exports.

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-Expectations that the US central bank will start cutting interest rates next month also supported oil prices. Atlanta Federal Reserve President Raphael Bostic said it may be time for cuts, with inflation decreasing and unemployment increasing more than anticipated. The disruptions and expectations of lower interest rates in the US turned the attention away from signs of weak demand.

-Oil prices lost more than one per cent in the previous session after data showed US crude inventories last week fell by 846,000 barrels to 425.2 million, smaller than the draw of 2.3 million barrels forecast by analysts in a Reuters poll. 

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Where are prices headed?

The US dollar index, recovering from 13-month lows, has capped potential gains for crude oil. The US EIA weekly inventory data revealed a decline of 846,000 barrels in crude oil inventories last week, compared to the anticipated decrease of 2.3 million barrels. However, reduced Libyan oil production and ongoing tensions in the Middle East support crude oil prices. 

According to Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services Ltd, oil prices continue to see high volatility, but overall are stuck in a range over the past 4-/ 5-weeks with support seen around 6,,000/ 5850, while on the upside resistance holds at 6,450/ 6,600".

‘’Disputes in Libya have placed approximately 1.2 million barrels per day of oil output at risk, which, along with the escalating Russia-Ukraine conflict, continues to bolster prices. We anticipate crude oil prices to remain volatile. Crude oil has support at $73.70-$73.00 and resistance at $75.00-$75.65. In INR terms, crude oil is supported at ₹6,220-6,170, with resistance at ₹6,340-6,400,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.