Oil jumps to above $90 as Libya protests spread
Tuesday, February 22, 2011
Oil prices jumped by more than $4 a barrel on Monday amid investor concerns that violent protests spreading in Libya could disrupt crude supplies from the OPEC nation and affect other oil-rich countries in the region.
By late afternoon in Europe, benchmark crude for March delivery was up $4.03 to $90.23 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 16 cents to settle at $86.20 on Friday.
U.S. markets, including Nymex floor trading, were closed Monday for the Presidents’ Day holiday and the thin trading volumes had the potential to amplify price fluctuations.
In London, Brent crude for April delivery gained $2.37 to $104.89 a barrel on the ICE Futures exchange.
The spread between the Nymex and Brent contracts has narrowed slightly but still remains far above usual levels of a few dollars per barrel. Brent is considered to be more sensitive to possible disruptions of Middle East oil supplies, while large U.S. stockpiles of crude are one of the reasons for the lower Nymex quotes.
On Sunday, Seif al-Islam Gadhafi, son of Libyan leader Moammar Gadhafi, warned protesters that they risked igniting a civil war in which Libya’s oil wealth “will be burned.”
While Libya is among the one of the world’s biggest oil producers and has the largest proven oil reserves in the whole of Africa. It produces around 1.6 million barrels of crude a day and exports 1.1 million barrels.
Oil companies like U.K.-based BP and Germany’s Wintershall said they were temporarily suspending operations in Libya, while Italy’s Eni said production continued normally. Some of the firms also began evacuating their foreign employees there.
“Compared to Tunisia (a minor crude exporter) or Egypt (not an exporter but a transit country), instability in Libya is a major concern to the oil industry,” said analysts at JBC Energy in Vienna.
Earlier Sunday, anti-government demonstrations spread to the Libyan capital of Tripoli and protesters seized military bases and weapons. In the eastern city of Benghazi, about 60 people were killed, while more than 200 have died since the unrest began seven days ago.
Oil traders are also closely watching recent protests in Iran, which is the second-largest crude exporter in the Organization of Petroleum Exporting Countries behind Saudi Arabia.
“The concerns in the market go beyond Libya,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “It’s unlikely we’re going to see any meaningful disruption of oil from the Middle East or North Africa, but the spread of this unrest has raised anxieties.”
Experts also mentioned the possible spread of the political upheaval to Saudi Arabia as a possible threat to oil supplies and a bullish factor for oil prices. The kingdom which sits atop the world’s largest proven reserves of conventional crude oil.