Oil prices drop, market less worried about Libya supply

Crude oil prices tumbled on Monday, with Brent and U.S. crude hitting their lowest levels since May 2009, reversing early gains on selling by investors convinced that supply disruptions in Libya would not offset a global supply glut.

Prices rose early on concerns about the damage in Libya, after an oil official said the country's two largest ports, Es Sider and Ras Lanuf, were being kept shut. But prices retreated as investors concluded that disruptions in Libya will not remove much supply from the global market.

'Every time the market tries to pick itself up, it's just another wave of selling,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. He said the market's concerns about oversupply are not going away.

Global benchmark Brent crude was down $1.55 at $57.90 by 1:39 p.m. EST, after retreating from a session high of $60.43.

U.S. crude fell $1.28 to $53.45 a barrel, following Brent down after hitting a session high of $55.74.

The early rally may have triggered sell stops, said Phil Flynn of Price Futures Group. 'Once we took out $54 we triggered some stops and that's basically it,” he said.

The market may test technical support at $50 a barrel, said Brian LaRose, a technical analyst at United-ICAP.

Oil tanks at Es Sider in Libya have been on fire for days after a rocket hit one of them, officials said.

The OPEC member nation is producing 128,000 barrels a day, an official said, down from the 1.6 million it produced prior to Muammar Gaddafi's ouster in 2011.

The early rise in prices prompted selling, said Tariq Zahir of Tyche Capital Partners. 'Any time you see any kind of a push up higher, some sellers emerge to go on the short side again,” said Zahir.

Oil prices this year are on track for the biggest decline since 2008 and the second-biggest annual fall since futures started trading in the 1980s.

(Additional reporting by Keith Wallis in Singapore and Simon Falush in London; Editing by Michael Urquhart, Jessica Resnick-Ault and David Gregorio)