Oil prices fall as investors monitor supply threats, Libya production restart

Oil prices fell on Tuesday as investors monitored the war in Ukraine, the conflict in the Middle East and the restart of production at a major oilfield in Libya.

The West Texas Intermediate contract for March fell $1.27, or 1.61%, to trade at $73.56 a barrel. The Brent contract for March lost $1.21, or 1.41%, to trade at $78.93 a barrel.

Oil prices rallied about 2% on Monday after a suspected Ukrainian drone strike against a major Russian fuel terminal on the Baltic Sea highlighted the geopolitical threats to crude supplies.

"The attack by Ukrainian forces on the Russian company Novatek in the Baltic is a timely reminder that a bigger, more influential war is still waging on," John Evans with PVM Oil Associates wrote Tuesday in a note.

The U.S. and Britain on Monday also launched another round of airstrikes against Houthi militants in Yemen. The militants have repeatedly attacked commercial vessels in the Red Sea over the past two months, forcing container ships and oil tankers to pause transit through the key waterway.

A blast of arctic cold in North America this month has hit U.S. crude production. Oil output in North Dakota, the third largest crude producing state in the U.S., was down 400,000 barrels per day as of Friday, according to state authorities.

Lynn Helms, North Dakota's director of Mineral Resources, said it could take a month for production to return to normal: "January is going to be a very, very bad month in terms of production numbers," Helms said in a webinar Friday.

The potential threats to crude supplies have been tempered by Libya restarting production at the Sharara oilfield, which was shut down for about two weeks due to protests. The oilfield has the capacity to produce 300,000 barrels per day.