Oil Pares Biggest Weekly Gain Since 2009 Amid Unrest in Libya

Oil headed for its biggest weekly gain in two years on concern the turmoil that has cut Libya’s output may spread to other parts of the Middle East.

Crude surged to a 29-month high in New York yesterday amid estimates that Libya’s output was cut by as much as two-thirds. It retreated after the U.S., Saudi Arabia and the International Energy Agency made assurances they can compensate for any disruption of Libyan supplies. Oil also slipped as a U.S. government report showed the economy grew slower less than forecast in the fourth quarter.

“There’s still big uncertainty regarding the amount of production losses in Libya and who will fill the gap,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

Crude for April delivery gained as much as $1.92 to $99.20 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.60 a barrel at 1:42 p.m. London time. Prices have risen more than 12 percent this week, the biggest gain since the five days ended Feb. 27, 2009.

Brent crude for April settlement was up 18 cents at $111.54 a barrel after rising as high as $113.91 on the London-based ICE Futures Europe exchange. Yesterday, it climbed to $119.79, the highest since Aug. 22, 2008. Brent is up 8.8 percent this week, the most since October 2009.

U.S. Economy

The Commerce Department said the U.S. economy grew at a 2.8 percent annual rate in the fourth quarter, slower than previously calculated as state and local governments made deeper cuts in spending. Economists surveyed by Bloomberg News had predicted expansion of 3.3 percent.

U.S. crude supplies climbed 822,000 barrels to 346.7 million in the week ended Feb. 18, the Energy Department said yesterday in a weekly report. Inventories were forecast to climb by 1.1 million barrels, according to the median of 15 analyst estimates in a Bloomberg News survey.

Crude advanced above $100 this week as violence in Libya forced companies including Total SA and Eni SpA to halt production. Libyan leader Muammar Qaddafi vowed to fight a growing rebellion until his “last drop of blood.” As much as 1 million barrels of the country’s daily output may have been shut, according to a Feb. 23 estimate from Barclays Capital.

Libya, which pumps 1.6 million barrels of oil a day, is the ninth-largest producer among the 12 members of OPEC, shipping most of its crude and fuels across the Mediterranean to Europe. The country has the largest reserves in Africa.

Price Swings

Prices swung the most in a year yesterday as Saudi Arabia and the IEA moved to allay concern that Libya’s lost output would lead to a supply shortfall. Brent traded in a range of $10.19, the most since Sept. 29, 2009, while New York’s West Texas Intermediate fluctuated in a range of $7.79 a barrel.

The Paris-based IEA said it is ready to release emergency stockpiles, if needed. Saudi Arabia and other members of the Organization of Petroleum Exporting Countries said they won’t wait for an emergency meeting of the group to increase output, according to a person with knowledge of producer-nation policy.

OPEC is prepared to meet any shortage if needed, Saudi Arabia Oil Minister Ali al-Naimi said Feb. 22. The country pumps 8.4 million barrels a day and says it has the ability to bring on a further 4 million.

The production cuts in Libya were the first instance of crude supplies being reduced by the civil unrest spreading through the Middle East and North Africa.

Protests ignited by the ouster of Tunisia’s president last month and fanned by the Feb. 11 fall of Egyptian President Hosni Mubarak have also spread to Yemen and Bahrain, prompting Saudi Arabia, the world’s biggest oil exporter, to introduce moves intended to increase living standards.

‘Upside Risk’

While OPEC spare capacity is sufficient to make up for any shortfall from Libya, there is a “significant upside risk” to prices if the unrest reduces supplies from other oil-producing countries, Goldman Sachs Group Inc. said in a Feb. 23 report.

Nomura Holdings Inc. predicted on the same day that oil prices may surge to $220 on the Libyan outages and any expansion into neighboring Algeria.

Yesterday the Nymex boosted the margin requirement on its oil futures for the first time since March 2009 and the IntercontinentalExchange Inc. raised its rates for the second day in a row. Margins for speculators on the Nymex will increase to $6,075 per contract from $5,063 after the close of trading today, according to a notice on the website of the CME Group, Nymex’s parent.

“If you have the margin raised, that takes capital out of your position,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “You have to reduce your position to balance your margin account.”

Oil may gain next week amid the Middle East turmoil, a Bloomberg News survey showed. Twenty-three of 40 analysts, or 58 percent, forecast WTI futures will climb through March 4. Last week, 44 percent said crude would increase.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.