Oil Rises as Allied Forces Strike Libya, Turmoil Escalates in Middle East

Oil climbed as allied air strikes in Libya threatened to prolong a supply outage in North Africa’s third-biggest producer and renewed concern escalating turmoil may disrupt Middle East exports.

Futures advanced as much as 2.3 percent after Muammar Qaddafi vowed to repel attacks by missiles and warplanes against military installations. Libya’s crude output has fallen to a quarter of the production before the crisis and may stop, according to the chairman of the national oil company. Bahrain Petroleum Co. employees went on strike last week in response to a police crackdown on anti-government demonstrations, while Yemen declared a state of emergency.

“The likelihood of a swift normalization of Libya crude oil production looks less and less likely after events over the weekend,” Soozhana Choi, head of Asian commodities research at Deutsche Bank AG in Singapore, said in an interview with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.”

Crude for April delivery climbed as much as $2.28 to $103.35 a barrel in electronic trading on the New York Mercantile Exchange. It was at $102.67 at 4:11 p.m. Singapore time. The contract, which expires tomorrow, last week declined 0.1 percent to $101.07.

The more-actively traded May futures rose as much as $2.42 to $104.27 a barrel. Gains have lagged behind London-traded Brent crude, widening the spread between the benchmark contracts to $11.85 from $11.53 a week ago.

Brent crude for May settlement gained as much as $2.29, or 2 percent, to $116.22 a barrel on the London-based ICE Futures Europe exchange. Front-month futures added 0.1 percent last week.

Air Strikes

Allied officials said two days of strikes have effectively grounded Qaddafi’s air force, halting advances into the rebel stronghold of Benghazi, Libya’s second-biggest city. The leader denounced the coalition allied against him, which included the U.S., the U.K. and France, as “the party of Satan.”

Libyan output has fallen to less 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 damage to facilities and sanctions, the International Energy Agency said.

State of Emergency

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 support the administration in quelling more than a month of protests. The Shiite Muslim majority is calling for democracy and civil rights in the Sunni- ruled kingdom that neighbors Saudi Arabia, the world’s biggest crude exporter.

“Bahrain is more of the hotspot rather than Libya,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “The focus will have to be on Saudi Arabia and Iran, that is where the powder keg is at the moment and it’s based on Bahrain.”

Yemen’s President Ali Abdullah Saleh fired his cabinet yesterday after the deadliest crackdown in two months of unrest led officials close to him to resign in protest. At least 46 people were killed and hundreds injured earlier this week as police and pro-regime gunmen shot at protesters in the capital.

Hedge Funds

Hedge funds slashed bullish oil bets from an all-time high on concern demand in Japan will tumble after the country’s biggest earthquake on March 11. About 29 percent of the country’s refining capacity was shut, data from the Petroleum Association of Japan industry group showed.

The funds and other large speculators decreased net-long positions, or wagers on rising prices, by 13 percent in the seven days ended March 15, the most since the week to Jan. 25, according to the U.S. Commodity Futures Trading Commission’s weekly Commitments of Traders report.

“If the oil price does stay above $100 a barrel and move higher for a significant period of time, we will see some crimping of global growth,” David Lennox, an analyst at Fat Prophets in Sydney, told Linzie Janis on Bloomberg Television’s “Global Connection.” “Where oil goes from here will be determined basically on the fear factor, in terms how far the regime changes may spread.”

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

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