Oil Futures Fall as Libya Says Oil Crisis is Over

Crude oil on both sides of the Atlantic dropped on Thursday as supply fears began to ease after Libya declared an end to an oil crisis that has slashed exports from the OPEC member.

Libya's government said it had reached a deal with a rebel leader controlling oil ports involving the handover of the last two terminals, potentially making an extra 500,000 barrels per day (bpd) of crude available for export.

"It's very much the Libyan situation and this stasis in Iraq, the supply tightness fears are quickly evaporating," said John Kilduff, partner at Again Capital LLC in New York.

He said that the approach of Hurricane Arthur on the U.S. East Coast was dampening demand for gasoline over the Fourth of July holiday weekend, pushing down U.S. crude more than Brent.

Brent fell to a three-week low as traders took profits, dropping 57 cents to $110.67 a barrel by 11:20 a.m. EDT (1520 GMT). The selling pushed the front of the Brent futures curve into an intraday contango of 3 cents. <LCOc1-LCOc2>

U.S. oil fell 74 cents to $103.74 a barrel, also hitting a three-week trough.

The dollar and U.S. bond yields climbed on Thursday as strong U.S. jobs data added to bets that U.S. interest rates could rise within the next six months.

A stronger dollar makes dollar-denominated oil futures contracts more expensive for holders of other currencies.

The crisis in Iraq is still providing a floor for prices, however, with industry officials and analysts saying the world's spare production capacity would struggle to cover for another big oil outage.

Iraqi Prime Minister Nuri al-Maliki is hoping parliament will form a new government in its next session after the first collapsed in discord. Baghdad can ill afford a long delay as large swathes of the north and west have fallen under the control of an al Qaeda splinter group.

Saudi Arabia has deployed 30,000 soldiers to its border after Iraqi soldiers abandoned the area, Saudi-owned al-Arabiya television said, but Baghdad denied this and said the frontier remained under its full control.

Little Impact
The fighting has had little impact on Iraqi exports to date. Production fell by about 170,000 bpd in June, according to a Reuters survey, with southern exports affected by technical issues.

(By Anna Louie Sussman; Additional reporting by Claire Milhench in London, Manash Goswami; in Singapore; Editing by Dale Hudson, Jason Neely and Marguerita Choy)