By Arunima Kumar

(Reuters) – Oil prices steadied on Thursday after two sessions of losses as concerns over Libyan supplies helped offset a smaller-than-expected draw in U.S. crude inventories that dampened demand expectations.

Brent crude futures rose 29 cents, or 0.37%, to $78.94 a barrel at 12:12 GMT, while U.S. West Texas Intermediate crude futures rose 36 cents, or 0.48%, to $74.88.

Both contracts lost more than 1 percent on Wednesday after data showed U.S. crude inventories fell by 846,000 barrels to 425.2 million last week, less than the 2.3 million decline analysts had expected in a Reuters poll.

Concerns about supply disruptions from Libya, a member of the Organization of the Petroleum Exporting Countries (OPEC), have provided some price support, some analysts said.

Supply problems in Libya and growing geopolitical concerns will keep oil markets on edge and are likely to limit the price decline, says Priyanka Sachdeva, a senior market analyst at Phillip Nova.

Production has been halted at some oil fields in Libya as part of a power struggle with the central bank. A consulting firm expects production to be interrupted by between 900,000 and one million barrels per day for several weeks.

Libya’s production in July was about 1.18 million barrels per day.

“A longer shutdown in Libya will give OPEC+ some more certainty to increase production in the fourth quarter of 2024 as currently planned,” ING analysts said in a client note, referring to a group consisting of OPEC and allies such as Russia.

The duration of the supply disruption could impact OPEC+’s production plans in October, which in turn could lead to a rise in oil prices if supplies do not ease as expected.

“Traders are divided on whether Libya’s export ban will affect OPEC+ production plans… it remains to be seen whether policy will change given the pessimistic demand outlook and concerns about the global economy,” said Ashley Kelty, analyst at Panmure Liberum.

Expectations that the US Federal Reserve may begin cutting interest rates next month also supported oil prices. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said it may be time for interest rate cuts as inflation has continued to fall and unemployment has risen more than expected.

(Reporting by Arunima Kumar in Bengaluru, Katya Golubkova in Tokyo and Trixie Yap in Singapore; Editing by Jason Neely and Mark Potter)