Oil fell after Libya said it will cease military operations against rebels and begin talks aimed at resolving the dispute that has curtailed crude shipments.
Oil dropped 0.4 percent after Muammar Qaddafi’s regime made the announcement that it’s ready to end hostilities. President Barack Obama said Qaddafi must stop violence and repression or face a military response by an international coalition. A United Nations vote yesterday cleared the way for the use of air attacks and a no-fly zone over Libya to protect civilians.
“There was a dramatic reversal after the Libyan announcement,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The market’s reaction is understandable because there were fears that ordinance would be in the air over Libya this weekend.”
Crude oil for April delivery dropped 35 cents to settle at $101.07 a barrel on the New York Mercantile Exchange. Futures were up as much as 2.2 percent to $103.66 before the Libyan announcement. Prices are little changed this week.
Brent crude oil for May settlement fell 97 cents, or 0.8 percent, to end the session at $113.93 a barrel on the London- based ICE Futures Europe exchange.
The monthlong uprising in Libya has left the country divided, with Qaddafi controlling much of the west, including the capital of Tripoli, and rebels holding some of the east, with the city of Benghazi as their base. Libya holds Africa’s biggest proved oil reserves.
The UN Security Council agreement cleared the way for the first Western military action against an Arab country since the 2003 invasion of Iraq. Libyan Deputy Foreign Minister Khaled Kaaim said at a press conference in Tripoli the regime is ready to negotiate a cease-fire, according to Agence France-Presse.
Attacks on Civilians
“All attacks against civilians must stop” and Qaddafi must pull back his troops from cities where they have attacked anti-government forces, Obama said in his first remarks since yesterday’s vote.
Forces loyal to Qaddafi shelled the city of Misrata after the cease-fire announcement, Al Jazeera television reported, citing witnesses. Twenty-five people have been killed there today, Qatar-based Al Jazeera said, citing medical staff.
Futures surged 3.5 percent yesterday after Qaddafi’s jets dropped bombs around the rebel stronghold of Benghazi and as Bahraini security forces arrested opposition leaders.
Bahrain declared a three-month state of emergency on March 15 as troops from Saudi Arabia and other Gulf states arrived to support the administration. Protests in Bahrain, where the U.S. Navy’s Fifth Fleet guards Gulf oil supply, follow unrest across the Middle East and North Africa that led to the ouster of leaders in Tunisia and Egypt.
Shiites make up about 70 percent of Sunni-ruled Bahrain’s population and many retain cultural and family ties with Iran, as well as with Shiites in Saudi Arabia, a minority of about 10 to 15 percent. Earlier this week Iran withdrew its ambassador to protest against the crackdown.
“It looks like there is a cold war between Saudi Arabia and Iran and Bahrain is the current battlefield,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “The strong actions taken by the Saudis in Bahrain signal that they won’t tolerate street demonstrations at home.”
Saudi Arabia and Iran are the two-biggest crude producers in the Organization of Petroleum Exporting Countries.
A magnitude 9 earthquake rocked Japan, the world’s third- biggest oil-consuming country, one week ago, setting off a deadly tsunami. The combination of natural disasters cut electricity to the Fukushima Dai-Ichi power plant and wrecked backup systems designed to protect the reactors and spent fuel pools from overheating.
Engineers plan to work into the night to restore power to two of the crippled reactors at the plant, while Prime Minister Naoto Kan described the crisis as “very grave.” Tokyo Electric Power Co. said it may finish reconnecting a power line to the No. 1 and No. 2 reactors by tomorrow morning.
“The situations in Libya, Bahrain and Japan all have worrying implications on the oil market,” Sieminski said.
Japanese oil demand will rise as nuclear plants are shuttered and the country rebuilds, Deutsche Bank said. Consumption will be 130,000 barrels a day, or 2.9 percent, higher than forecast before last week’s temblor, Singapore-based Soozhana Choi, the bank’s head of Asian commodities research, said in a report today.
Oil volume in electronic trading on the Nymex was 610,435 contracts as of 3:28 p.m. in New York. Volume totaled 597,378 contracts yesterday, 26 percent below the average of the past three months. Open interest was 1.54 million contracts.
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