Oil above $98 as Libya’s oil industry in chaos

Oil prices rose above $98 a barrel Monday as Libya’s violent power struggle continued to disrupt crude output in the OPEC nation. Violent protests in Oman also raised fears political upheaval could affect other crude exporters.

By early afternoon in Europe, benchmark crude for April delivery was up 33 cents to $98.21 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 60 cents to settle at $97.88 on Friday.

In London, Brent crude for April delivery was up 46 cents to $112.60 a barrel on the ICE Futures exchange.

In volatile trading, both contracts were well off their peaks from earlier in the session: Nymex reached $99.96, while Brent briefly touched $114.50.

As fighting between supporters and opponents of Libyan leader Moammar Gadhafi continued over the weekend, foreign oil companies scrambled to evacuate staff. The chaos in Libya’s oil industry has cut production by at least 750,000 barrels daily, down from its normal capacity of 1.6 million barrels, the International Energy Agency reported late Friday.

While markets await key U.S. economic data this week — including non-farm payroll figures on Friday — to calibrate how the U.S. economic recovery is shaping up, the events in Libya continue to demand close attention as the protests could spread to other oil-rich countries.

“The ongoing geopolitical tensions across the Middle East and North Africa will continue to dominate the markets, causing further volatility and nervous trading conditions,” said a report from Sucden Financial in London.

On Sunday, riot police in Oman battled pro-democracy demonstrators, killing at least one person.

“Oman has a daily production of 850,000 barrels of crude and plays an important role as a benchmark for oil shipments in the Asian region,” said analysts at Commerzbank in Frankfurt.

In Saudi Arabia, the world’s biggest oil exporter, more than 100 leading Saudi academics and activists have joined calls for King Abdullah to enact sweeping reforms, including relinquishing many powers under a constitutional monarchy.

Traders are also beginning to calculate how much rising fuel costs will undermine consumer spending and global economic growth.

“Investors are now worrying that rising oil prices are less a symptom of macro strength and more a threat to growth,” Morgan Stanley said in a report. “It seems that (a Brent average of $115 this year) would be a material headwind for growth.”

In Asia, higher crude prices are putting more pressure on central banks to raise interest rates to choke off quickening inflation, moves that could also undermine economic growth.

“The ongoing oil shock adds a new layer of risk to region’s landing,” Citigroup said in a report. “If the pace of recent increase is sustained, the risk to a rougher landing in Asia grows.”

In other Nymex trading in March contracts, heating oil rose 0.54 cent to $2.9363 a gallon and gasoline lost 1.25 cents to $2.727 a gallon. Natural gas April futures were down 1.9 cents at $3.986 per 1,000 cubic feet.

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Alex Kennedy in Singapore contributed to this report.

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