[Oil and Gas Post] - Oil Slips From Two-Week High on Speculation Mideast Risk Limited to Libya

Oil Slips From Two-Week High on Speculation Mideast Risk Limited to Libya

By Grant Smith and Ann Koh - Mar 22, 2011 4:22 PM GMT+0700

Crude oil retreated from its highest price in almost two weeks amid speculation that supply disruptions from political unrest in North African and the Middle East may be confined to Libya.
Futures slipped after climbing as much as 0.3 percent as demonstrators in Yemen spent the night on streets to maintain pressure on President Ali Abdullah Saleh, who is facing a growing internal revolt. Tension in the region is adding a risk premium of $15 to $20 a barrel to Brent oil prices, according to Societe Generale SA.

“The unrest in Libya seems to be priced in almost completely by now,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said in an interview with Bloomberg television. “The price will stay at elevated levels of around $110 to $120 for several months and will drop back to $90 by the year-end.”

Crude for April delivery on the New York Mercantile Exchange was at $102.05 a barrel, down 28 cents, at 9:15 a.m. London time, after rising as high as $102.67. Yesterday, it gained $1.26 to $102.33, the highest settlement since March 10. The April contract expires today. The more-actively traded May futures were down 22 cents at $102.87 a barrel. Brent oil for May settlement was at $114.65, down 31 cents, on the ICE Futures Europe exchange in London after rising as much as 0.5 percent. The spread between the two May contracts narrowed to $11.80 a barrel from $11.87 yesterday.

Regional Unrest

Regional turmoil has toppled the leaders of Tunisia and Egypt and reached Yemen, Bahrain and Syria. Societe Generale raised its forecast for Brent by $11 to average $109 a barrel this year as political risks increased, analysts led by Michael Wittner said in a report dated yesterday.

Allied forces are expanding their air campaign over Libya in an effort to thwart Muammar Qaddafi’s fighters and enable rebels to control cities, such as the opposition capital of Benghazi, which had been under attack by troops loyal to the regime. The Libyan leader denounced the coalition allied against him, which includes the U.S., the U.K. and France, as “the party of Satan.”

Libyan output has fallen to fewer than 400,000 barrels a day, Shokri Ghanem, chairman of Libya’s National Oil Co., said on March 19. The country produced 1.59 million barrels a day in January, according to estimates compiled by Bloomberg. Exports may be halted for “many months” because of sanctions and damage to facilities, the International Energy Agency said.

Libyan oil production is likely to remain disrupted for the rest of this year, said Lawrence Eagles, head of commodities research at JPMorgan Chase & Co. in New York.

Protest in Yemen

Thousands of Yemenis spent the night on streets across the country to maintain pressure on President Ali Abdullah Saleh, who is facing a growing internal revolt by army leaders, ministers and diplomats. Yemen produced about 298,000 barrels of oil daily in 2009, according to BP Plc data.

Military officers including Ali Muhsin al-Ahmar, commander of the first armored division, and Mohammed Ali Muhssein, commander of the eastern region, abandoned the regime yesterday. Their move was a result of the crackdown three days ago that left dozens dead, said Mohammed al-Sabri, an opposition leader.

Bahrain’s government declared a three-month state of emergency on March 15 after troops from Saudi Arabia and other Arab Gulf states arrived to help in quelling more than a month of protests.

Japan is delivering more relief supplies in areas hardest hit by the March 11 earthquake as workers restored power to two reactors at a crippled Fukushima Dai-Ichi nuclear power plant yesterday, prompting Prime Minister Naoto Kan to say there was “light at the end of the tunnel.”

Short-Term Drop

“The recent tragic events in Japan will result in a sharp short-term drop in economic activity but is likely to be followed by a strong recovery driven by reconstruction and replacement of durables which would boost the demand for many commodities,” Societe Generale’s analysts said.

Japan was responsible for 5.2 percent of global oil demand in 2009, according to BP, which publishes its Statistical Review of World Energy each June. Japan is the third-biggest crude- consuming country, after the U.S. and China.

To contact the reporters on this story: Ann Koh in Singapore at akoh15@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

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