Oil prices rose by nearly 3 per cent on Wednesday on the back of supply concerns after reports of disruption in Libya's largest oilfield as well as the continuing attacks in the Red Sea.
Brent, the benchmark for two thirds of the world's oil, was trading 2.86 per cent higher at $78.06 a barrel at 8.45pm UAE time. West Texas Intermediate (WTI), the gauge that tracks US crude, was up 3.08 per cent at $72.55 a barrel.
"Oil is trading a few percentage points higher today, buoyed it would appear by protests at Libya's largest oilfield and further attacks in the Red Sea," Craig Erlam, senior market analyst at Oanda, said on Wednesday.
"Both could threaten output if intensified but may not pose a substantial upside risk to prices otherwise."
Production at the Sharara field has been completely shut down due to protesters, Reuters reported on Wednesday, citing engineers.
The oilfield in southern Libya can produce up to 300,000 barrels per day.
Meanwhile, continuing attacks by Yemen's Houthis on cargo ships in the Red Sea in retaliation for Israel's bombardment of Gaza have escalated concerns about supply disruption.
The Bab Al Mandeb, on the southern edge of the Red Sea, is a route for oil tankers and cargo ships sailing between the Arabian Gulf and Asia, as well as to Europe through the Suez Canal.
About 12 per cent of the world's seaborne oil trade and 8 per cent of liquefied natural gas passes through the strait.
However, Brent remains below $80 and about 14 per cent below its September highs.
"Brent and WTI are trading around these low levels because the market is well supplied and cracks have appeared in the Opec+ alliance, creating uncertainty around its output cuts," Mr Erlam said.
Crude futures recorded their biggest annual drop since 2020 last year at a time of record US oil production and a slowdown in major economies.
On an annual basis, Brent ended last year more than 10 per cent lower, while WTI had dropped by nearly 11 per cent.
"Strong supply growth was one factor dragging fossil-fuel prices lower in 2023," UBS strategists said in a note on Wednesday.
"Looking back at 2023, oil prices ended lower than we had expected. Despite market chatter that economic growth concerns and high interest rates were not helping oil demand, growth came in better than expected at around 2.3 million barrels per day," they added.
However, despite Opec+ removing output from May onwards, the oil market was "less undersupplied in the second half of 2023 than we had expected".
Supply growth outside Opec+ was also strong, with total production up by about 1.8 million bpd in 2023.
For this year, UBS expects the price of Brent to recover to $80-$90 per barrel and WTI to $75-$85.
The difference in 2024, compared to previous years, will likely be the shift in the narrative from demand to supply, UBS said.
"Strong demand growth has allowed supply to be added more easily to keep the market in balance. With demand growth slowing down, we believe ensuring that not too much supply is added, nor for inventories to rise again, will be a tough balancing act.
"In our view, what will remain unchanged is that Opec+ will continue to restrain production in an attempt to keep the market in balance and inventories at current levels."
