Oil extends losses despite IEA warning of spare capacity limits

By Jessica Resnick-Ault

NEW YORK (Reuters) - Oil prices fell on Thursday, extending the previous session's sharp losses as Libyan exports resumed, despite the International Energy Agency's (IEA) warning that the world's oil supply cushion "might be stretched to the limit" due to production losses.

Brent crude oil fell 30 cents a barrel to $73.10 a barrel by 11:24 a.m. EDT (1524 GMT), after earlier trading at a session low of $72.67. On Wednesday, the global benchmark had slumped $5.46, or 6.9 percent, its biggest one-day fall in two years

U.S. crude fell 88 cents to $69.50 a barrel, after losing 5 percent the previous session.

Early in the session, both benchmarks pushed briefly higher on U.S. President Trump's comments that his administration would try to negotiate a fair trade deal with China.

"The market was still nervous," said Phil Flynn, an analyst at Price Futures group in Chicago. After U.S. crude briefly traded above $71 a barrel, traders exited positions, leading the market lower to test below $70 a barrel, he said.

The market continued in the grips of bearish supply news.

The announcement that Libya's National Oil Corp (NOC) would reopen four oil export terminals, ending a standoff that had shut down most of Libya's oil output, was a key catalyst for a dramatic sell-off on Wednesday, analysts said.

The reopening will allow the return of up to 850,000 bpd of high-quality crude to international markets.

Two Libyan oilfields will reopen, NOC and industry sources said on Thursday, easing supply concerns that have boosted the market.

Focusing on bearish factors, the market shrugged off warnings from the IEA that there is potentially a spare capacity crunch.

"Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world's spare capacity cushion, which might be stretched to the limit," the Paris-based agency said in its monthly report.

"This vulnerability currently underpins oil prices and seems likely to continue doing so," the IEA added.

The market also brushed off bullish data from information provider Genscape, which reported that inventories at the Cushing, Oklahoma delivery hub had fallen 929,399 barrels per day from July 6 to July 10, traders said.

Supply to the U.S. market, particularly Cushing, has also been squeezed by the loss of some Canadian oil production.

(Reporting by Aaron Sheldrick in Tokyo and Christopher Johnson in London; Editing by Marguerita Choy and Dale Hudson)