Brent crude futures were up USD 1.05, or 1.3%, to USD 79.70 a barrel by 2:04 p.m. EDT (1804 GMT). U.S. West Texas Intermediate crude futures were up USD 1.16, or 1.6%, to USD 75.68 a barrel.
More than half of Libya's oil production was offline on Thursday and exports were halted at several ports amid a standoff between rival political factions. About 700,000 barrels per day of oil output is offline in the country, according to Reuters calculations.
"Libyan exports were holding up so far, but with the closure of the export terminal, that should translate in a tighter Atlantic basin," said Giovanni Staunovo, an analyst at UBS.
Even after the current blockades are lifted, investors will need to adapt to Libya being a wildcard for the markets next year, said Aline Carnizelo, managing partner at Frontier Commodities.
Meanwhile, Iraq plans to reduce oil output in September as part of a plan to compensate for producing over the quota agreed with the Organization of the Petroleum Exporting Countries and its allies, a source with direct knowledge of the matter told Reuters on Thursday.
Iraq, which produced 4.25 million bpd in July, will cut output to between 3.85 million and 3.9 million bpd next month, the source said. Its agreed quota is 4 million bpd.
"At the moment, the market is tight and vulnerable to upside moves," Carnizelo said.
Expectations for the U.S. central bank to start cutting interest rates next month also supported oil prices. Atlanta Federal Reserve President Raphael Bostic said it may be time for cuts, with inflation down farther and unemployment up more than anticipated.
The disruptions, and expectations of lower interest rates in the U.S., turned the attention away from signs of weak demand.
Oil prices lost more than 1% in the previous session after data showed U.S. crude inventories last week fell by 846,000 barrels to 425.2 million, smaller than the draw of 2.3 million barrels forecast by analysts in a Reuters poll.
Total oil products inventories in Europe's Amsterdam-Rotterdam-Antwerp (ARA) refining hub rose 1.1% in the week to Thursday, data from Dutch consultancy Insights Global showed.
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