Oil Surges as UN Approves Libya No-Fly Zone; Credit Suisse Raises Forecast

Oil surged to its highest price in a week in New York after the United Nations Security Council approved military intervention to protect civilians in Libya, holder of Africa’s largest crude reserves.

Futures jumped as much as 2.2 percent after the UN voted to establish a no-fly zone over Libya and demanded a cease-fire with rebels. Oil climbed 3.5 percent yesterday, the most in three weeks, after Muammar Qaddafi’s jets dropped bombs around Benghazi while Bahraini security forces arrested opposition leaders. Credit Suisse Group AG raised its forecast for Brent crude traded in London, citing Middle East unrest.

“The no-fly zone resolution increases the risk premium,” said Hannes Loacker, an analyst with Raiffeisen Bank International AG in Vienna. “Without it, Qaddafi would probably re-conquer all parts of the country and the oil business would become more stable sooner. With the resolution, oil production will face more substantial outages for a longer period.”

Oil for April delivery gained as much as $2.24 to $103.66 a barrel in electronic trading on the New York Mercantile Exchange, and was at $103.08 at 12:08 p.m. London time. Yesterday, it jumped $3.44 to $101.42, the highest close since March 10. Prices are up 1.9 percent this week.

Brent crude for May settlement was up $1.11 at $116.01 after climbing as much as $2.39, or 2.1 percent, to $117.29 a barrel on the ICE Futures Europe exchange in London. Yesterday, the contract advanced $4.30, or 3.9 percent, to $114.90.

Brent Forecast

Credit Suisse Group AG today upgraded its forecasts for Brent, citing unrest in the Middle East and concerns about capacity shortfalls. The bank increased its projection to $105.80 a barrel from $85, analysts led by Sydney-based Sandra McCullagh said in a report. It raised its 2012 estimate by 18 percent to $100.50 a barrel from $85. UBS AG this week advanced its 2011 forecast by 22 percent to $103.75 a barrel from $85.

Prices retreated briefly after China’s central bank moved to cool economic growth, after inflation and industrial output exceeded economists’ forecasts. The People’s Bank of China raised banks’ reserve requirements by half a percentage point.

Oil climbed yesterday on concern violence in Bahrain will spill into Saudi Arabia, the world’s largest oil exporter. Forces from neighboring countries were invited by Bahrain to help quell a month of protests driven by majority Shiites. Regional unrest has cut Libya’s crude production and toppled the leaders of Tunisia and Egypt.

The no-fly resolution may “result in the UN having to take military action against Qaddafi and the prospect of that is not good for a peaceful resolution,” Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, said by telephone today. “The prospect of supply tightening is keeping a floor under oil prices.”

State of Emergency

The last time the United Nations imposed a no-fly zone upon a member of the Organization of Petroleum Exporting Countries was in Iraq in 1991, intended to prevent strikes by Saddam Hussein’s air force on the north and south of the country after his troops were driven out of Kuwait.

Bahrain declared a state of emergency on March 15 as a second contingent of troops from Gulf nations poured into the kingdom. About 1,000 people in Saudi Arabia’s eastern city of al-Qatif defied a ban on demonstrations and protested peacefully on March 16 to demand the country’s troops end their incursion into Bahrain.

“Bahrain arrested seven opposition leaders, drawing U.S. criticism and raising fears of a regional conflict in top oil producer Saudi Arabia,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in an e-mailed note today.

‘Many Months’

The restoration of Qaddafi’s control won’t necessarily lead to the quick resumption of Libyan oil output, analysts at JPMorgan Chase & Co. led by Lawrence Eagles in New York said in a note to clients yesterday. It will be difficult to persuade foreign workers to return and there may be the obstacle of UN sanctions and a boycott of Libyan oil, the analysts said.

Libya’s oil exports may be halted for “many months” because of damage to facilities and sanctions following a rebellion against Qaddafi, the International Energy Agency said in its monthly Oil Market Report on March 15.

Analysts at Nomura International Ltd. said Japan’s oil demand may jump by 3.9 percent, or 171,000 barrels a day, as the country seeks alternative power sources after an earthquake and tsunami disabled nuclear power plants.

Nomura said it based its estimates on the effect of quakes in 1995 and 2007. Japan will make up for the bulk of the nuclear power losses by boosting output in oil-fired and natural gas- fueled power plants, the bank said in an e-mailed report.

A Tokyo Electric Power Co. official said the company may connect a power cable to the Fukushima nuclear plant this afternoon as workers try to restart the cooling system and prevent a meltdown. The March 11 earthquake, Japan’s strongest on record, triggered a tsunami that has killed 6,405 people, according to the National Police Agency.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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

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