Oil surges by over $1/bbl on Libya unrest

Reuters, Monday 21 Feb 2011

Fears of supply disruption amid rising regional tensions

Oil jumped by over US$1.00 a barrel on Monday, as violent clashes in OPEC-member Libya heightened fears of social unrest spreading across the Middle East and North Africa and disrupting supplies in the major oil-producing region.

Protests against Muammar Gaddafi, leader of Libya which produces 1.58 million barrels per day of crude, spread to the capital Tripoli and his son vowed to fight until the "last man standing", after scores of protesters were killed in the eastern city of Benghazi.

Brent crude for April delivery rose $1.02 to $103.54 a barrel , its intra-day high. On Friday, Brent settled at $102.52, its fourth-straight weekly rise.

U.S. crude for March delivery rose $1.10 to $87.31 a barrel, after hitting a high of $87.63.

"I would be worried if the unrest spreads to Saudi Arabia," said Benson Wang of Commodity Broking Services in Sydney.

The leader of the Al-Zuwayya tribe in eastern Libya threatened on Sunday to cut oil exports to Western countries within 24 hours unless authorities stop what he called the "oppression of protesters".

Other analysts fear that continued violence in Libya and tensions across the region could lead to further price hikes, issues which are likely to dominate talks in Saudi Arabia this week aimed at narrowing the gap between consumer nations and resource-holders.

"The oil market could easily jump another $10 in a short time if the violence continues," said David Cohen, Director of Asian Economic Forecasting at Action Economics.

Monday's U.S. President's day holiday also led to increased volatility in U.S. crude prices, as Asian traders were reluctant to hold on to short positions till trading restarts in the United States on Tuesday.

"Some buying to cover short positions would have pushed prices up," Wang said, referring to activity due to the holiday. "The fundamentals don't support the increase in WTI."

Short-covering ahead of the contract's expiry on Tuesday also helped to pull prices higher.

The spread between the two grades narrowed by about 80 cents to $12.20 by 0342 GMT, after settling at a record of $16.27 a barrel last week.

Revolutions which deposed the presidents of Tunisia and Egypt have shaken the Arab world and inspired protests across the Middle East and North Africa, threatening the grip of long-entrenched autocratic leaders.

In the Gulf kingdom of Bahrain, thousands of protesters gathered in a square in Manama, calling for political change and awaiting promised talks with the island's Sunni rulers.

Concerns over Middle East oil supplies helped prices recover from early weakness after China raised its banks' reserve requirements last Friday for the second time this year to combat rising inflation.

Investors are worried that the move will rein in the country's oil demand growth, although in the longer-term the move was seen as a positive measure to control inflation, analysts said.

And on Monday, a survey showed that the steady ratcheting-up of monetary tightening has combined with the Lunar New Year holiday to weigh on China's factories in February, even as inflation has continued to accelerate.

Finance ministers of the world's major economies signaled concerns over rising commodity costs driving inflationary pressures globally and reached a fudged accord on Saturday on how to measure imbalances in the global economy.

Asian stocks eased on Monday on China's policy tightening and worries over the Middle East unrest.

Concern that a breathtaking rally in U.S. stocks in recent weeks, which has boosted the region's developed markets such as Australia and Tokyo, may be nearing an end also weighed on sentiment.

The dollar index, which tracks the greenback's performance against a basket of major currencies, slipped 0.04 percent to 77.632

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