BLBG: Oil Rises to Two-Year High on Libya Unrest; Goldman Sees Brent at $110
Oil jumped to the highest in more than two years in New York as intensifying violence in Libya stoked concern that supplies from the holder of Africa’s largest crude reserves may be disrupted.
Futures for April delivery in New York rose as much as 9.8 percent from the Feb. 18 settlement and London-traded Brent surged to the highest since September 2008, as soldiers deserted Libyan leader Muammar Qaddafi’s government and diplomats resigned. Brent may trade between $105 and $110 a barrel in coming weeks if uncertainty continues, according to Goldman Sachs Group Inc.
“Libya is quite an important oil exporter, especially to Europe,” said Hannes Loacker, an analyst with Raiffeisen Bank International AG in Vienna. “Now fear and uncertainty is increasing over whether countries in the Gulf may be affected.”
Crude for April delivery rose as much as $8.77 to $98.48 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.27 at 11:01 a.m. London time. Floor trading was closed yesterday for the U.S. Presidents Day holiday and electronic trades will be booked with today’s transactions for settlement purposes. The March contract, which expires today, gained as much as $8.29, or 9.6 percent, to $94.49 a barrel. Front-month futures are up 17 percent in the past year.
Brent oil for April settlement on the London-based ICE Futures Europe exchange climbed as much as $2.83, or 2.7 percent, to $108.57 a barrel. It increased 3.1 percent yesterday to $105.74, the highest settlement since Sept. 22, 2008.
Brent’s Premium Declines
The spread between the two main April crude oil contracts narrowed to $10.60 a barrel from $12.56 yesterday. A disruption of supplies as a result of civil unrest in Libya may lead to a further reduction in the price difference between Brent crude and West Texas Intermediate oil, according to Switzerland-based researcher Petromatrix GmbH.
“If a real supply disruption develops in Libya in our opinion it does not matter which benchmark better represents the world supply and demand,” Petromatrix Managing Director Olivier Jakob said in a note today. “The U.S. investment flows that will want to hedge against an oil price spike will come into WTI and despite the contango issue in Cushing, this could force a further reduction in the Brent premium to WTI.”
Goldman Sachs said London prices may extend gains on uncertainty in Libya and reach a record if unrest spreads to larger producers in the Middle East, such as Saudi Arabia.
“The real key is the contagion risk,” Jeffrey Currie, the bank’s London-based head of commodities, said in Hong Kong today. “Then prices could test historical highs.”
Prices May ‘Skyrocket’
Libya pumped 1.59 million barrels a day of oil in January, equivalent of about 8 percent of U.S. consumption, based on a Bloomberg News survey.
“The big risk for the world is that oil prices skyrocket to, say, $120 a barrel for Brent,” Arjuna Mahendran, the Singapore-based head of investment strategy for Asia at HSBC Private Bank, told Susan Li on Bloomberg Television’s “First Up Asia” program. “That could really cause a mini recession in this consumption upsurge that we’ve seen in the U.S. starting late last year.”
The oil-options market shows traders have never been less certain whether prices will rise or fall as the unrest spreads.
Growing speculation the protests will drive oil higher narrowed the difference between the cost of betting on gains and declines to 0.57 percentage point on Feb. 18, an all-time low for June futures, according to data from the New York Mercantile Exchange. That’s down from more than 2 percentage points on Jan. 24, before the violence began escalating around the region.
‘Rivers of Blood’
Libya is the eighth-largest producer among those with quotas in the Organization of Petroleum Exporting Countries, a group that pumps 40 percent of the world’s oil.
Qaddafi said he hasn’t fled the country after government forces attacked protesters and rebels claimed control of Benghazi, Libya’s second-largest city. More than 300 people have died, the International Federation for Human Rights said. Qaddafi’s son, Saif al-Islam Qaddafi, earlier threatened that “rivers of blood” would flow unless the uprising ends.
Anti-government riots that started in Tunisia have also spread through Egypt, Yemen, Algeria, Iran, Djibouti, Bahrain and Morocco. Countries in North Africa and the Middle East were responsible for 36 percent of global oil output and held 61 percent of proved reserves in 2009, according to BP Plc, which publishes its Statistical Review of World Energy each June.
Egypt’s state-run Middle East News Agency reported that two Iranian warships entered the Suez Canal, citing the Suez Canal Authority. Israel would consider the presence of Iranian warships sailing through the waterway “a provocation,” said Foreign Ministry spokesman Yigal Palmor.
Protests in Bahrain, provoked by discontent among the majority-Shiite Muslim population, have sparked concern the violence will erupt in neighboring Saudi Arabia, which holds one-fifth of the world’s oil. Saudi Arabia has a Shiite minority concentrated in its eastern oil-producing hub.
To contact the reporters on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net
