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Crude Oil Declines Most in Two Weeks as Saudis Offer Additional Supplies

Oil fell the most in two weeks as Saudi Arabia offered to make up for supplies lost because of unrest in Libya and on reports the North African country is exporting crude.

Futures slid 0.9 percent in New York after Khalid Al-Falih, the Saudi Arabian Oil Co.’s chief executive officer, said the kingdom is ready to compensate for any shortfall in crude supply. Most ships picking up Libyan oil cargoes have done so successfully in the past week, said Bob Knight, head of tankers at Clarkson Plc, the world’s largest shipbroker.

“The threat to supply overall doesn’t look as dangerous as it did last week,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Events in Libya seem to be moving steadily in one direction, with oil production apparently not dropping further and some exports being loaded.”

Crude oil for April delivery declined 91 cents to settle at $96.97 a barrel on the New York Mercantile Exchange, the biggest daily drop since Feb. 11. Futures reached $103.41 a barrel on Feb. 24, the highest intraday price since Sept. 29, 2008. They gained 8.8 percent during February and have advanced 22 percent in the past year.

Armed opponents to Libyan leader Muammar Qaddafi control much of Libya’s east and have deployed tanks and anti-aircraft weapons to defend Zawiyah near the capital, Tripoli, according to the Associated Press. The U.S. blocked $30 billion in assets, the biggest sanction ever, and indicated it will assist the Libyan rebels trying to Qaddafi from power.

Market Volatility

Saudi Arabia wants to avoid “harmful” volatility in the oil market because of a decline in Libyan output, the state-run Saudi Press Agency reported today after a cabinet meeting. Oil options volatility jumped to an eight-month high last week on the Nymex.

“We’re ready to supply incremental change in demand from our customers,” Al-Falih told reporters in the eastern Saudi city of Khobar, when asked if Saudi Arabian Oil Co., also known as Aramco, would increase its production. He declined to specify the amount of additional oil Aramco would provide. “The customer demand varies from day to day, so it’s hard to tell by how much we will raise the output.”

Brent crude for April settlement slipped 34 cents, or 0.3 percent, to $111.80 a barrel on the London-based ICE Futures Europe exchange. The contract reached $119.79 on Feb. 24, the highest price since Aug. 22, 2008. Brent gained almost 13 percent during February.

The price difference between New York and London-traded futures widened to $15.10 a barrel today. The spread averaged 76 cents last year. It had narrowed to $10.36 from a record $16.03 a barrel last week.

Libyan Output

Libya’s oil chief told AP that output is down 50 percent because of the exodus of foreign oil workers from the country. Shokri Ghanem, head of the National Oil Co., said it was safe for foreign workers to return. All refineries, installations and oil fields in the country are “safe and protected,” he said.

“The Saudi offer to make up for any missing barrels has calmed things a bit,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

The Organization of Petroleum Exporting Countries’ crude- oil output fell in February as Libya’s production dropped to an eight-year low, a Bloomberg News survey showed.

Total OPEC production slipped 285,000 barrels, or 1 percent, to an average 29.11 million barrels a day, according to the survey of oil companies, producers and analysts. Daily output by members with quotas, all except Iraq, decreased 335,000 barrels to 26.515 million, 1.67 million above their target.

Libyan output fell 200,000 barrels a day to 1.385 million this month, the lowest level since January 2003.

Omani Unrest

In Oman, the largest Middle Eastern producer outside the Organization of Petroleum Exporting Countries, two demonstrators were killed and several wounded in clashes with police yesterday, according to hospital and government officials.

“All eyes are on the Middle East,” said Tom Bentz, a broker with BNP Paribas Commodity Futures in New York. “There’s now an uprising in Oman, which produces about 800,000 barrels.”

Hedge funds and other large speculators increased net-long positions, or wagers on rising prices, by 30 percent in the seven days ended Feb. 22 to 240,572 futures and options combined, the highest in records dating back to June 2006, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report.

Oil prices could rise to $120 to $150 a barrel on tensions in the Middle East, T. Boone Pickens, the billionaire energy investor, said in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene.

Oil volume in electronic trading on the Nymex was 503,685 contracts as of 3:25 p.m. in New York. Volume totaled 672,386 contracts Feb. 25, 13 percent below the average of the past three months. Open interest was 1.52 million contracts.

To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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