Oil surges on unrest fears in Saudi and Iran
Reuters, Wednesday 2 Mar 2011
Crude rises highest since 2008 with developments in top exporters

Brent crude oil surged asmuch as US$5 on Tuesday and posted its highest closing price in2-1/2 years, as protests across North Africa and the MiddleEast stirred concerns about supplies from top Gulf OPECproducers.

News of a detained Shi-ite cleric in Saudi Arabia andclashes in Iran triggered the rally, and gains accelerated astraders worried that the world's biggest crude exporters couldbe hit by unrest like that which has halved Libya's oilproduction.

Brent crude futures for April rose $3.62 to settle at$115.42 a barrel, the highest finish since Aug. 27, 2008. U.S.crude rose $2.66 to settle at $99.63 a barrel, its highestsettlement since 30 September 2008.

Brent extended gains in post-settlement trade, rising atone point by more than $5 to a high of $116.76 following U.S.industry data showing an unexpected decline in weekly U.S.crude inventories and a shocking 4.9 million barrel drop ingasoline stocks.

In Libya, where Muammar Gaddafi remained defiant in theface of increasing international pressure and rebel offensives,the top oil official told Reuters the country's 1.6 millionbarrels per day (bpd) of production was halved although oilinstallations were undamaged.

The United States warned that the OPEC member faced thedanger of civil war if Gaddafi refused to quit. Many analystshave warned it could be months bofore production is restored,oil traders were beginning to shift their focus to even largerrisks in the Gulf.

Further rumblings are detected in Saudi and Iran.

Human rights activists told Reuters Saudi authorities haddetained a Shi'ite cleric, fueling fears of sectarian conflictin the world's top oil exporter. The news spooked both oil andequity markets.

"The Saudis had seemed to be walking the tightrope andavoiding problems, but the cleric story had people worried thatit signaled problems there," said Robert Yawger, senior vicepresident, energy futures at MF Global in New York.

Traders were also unsettled by a report in an Egyptiannewspaper -- quickly denied -- that Saudi Arabia had sent tanksto Bahrain to try to quell protests.

In Iran, pro-reform websites reported clashes betweenanti-government protesters and security forces in Tehran. Thisfed fears that another top oil supplier could be affected bythe spread of turmoil that toppled leaders in Egypt andTunisia, and spread to Oman and Bahrain.

"We're now at the point where a $1-$2 move is just a normalfluctuation," said Peter Beutel, president at Cameron Hanoverin New Canaan, Connecticut."At this point, we're rife with rumors and when any emergefrom the 'Petroleum Gulf' we're going to see a jump. If there'ssome truth in it, the move will be $5-$6 rather than $1-$2."

The cascading unrest has driven prices up nearly 14 per centin seven days, the biggest such rise since October 2009.Trading activity was subdued for a second day, suggestingsome of the panicked, volatile trade of last week had given wayto a more measured reaction in an uncertain market grapplingwith the most serious geopolitical risks since the U.S.-ledinvasion of Iraq.

"The low volume indicates sellers have backed away fromthese markets because no one can assert when or how this(turmoil) will end," said Tim Evans, energy analyst for CitiFutures Perspective in New York.