Oil Rises as Allied Forces Strike Libya, Turmoil Escalates in Middle East
March 21 (Bloomberg) -- Francisco Blanch, global head of commodities research at Bank of America-Merrill Lynch, talks about the outlook for gold and oil prices. Blanch, speaking with Deirdre Bolton on Bloomberg Television's "InsideTrack," also discusses the natural gas industry. (Source: Bloomberg)
Oil climbed as allied air strikes in Libya threatened to prolong a supply outage in Africa’s third-biggest producer and renewed concern that escalating turmoil may disrupt Middle East exports.
Futures advanced as much as 2.3 percent in New York after Muammar Qaddafi vowed to repel attacks by missiles and warplanes against military installations. Libya’s crude output has fallen to a quarter of pre-crisis production levels may stop entirely, 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 market has priced in almost a complete loss of Libyan production,” Tobias Merath, head of commodity research at Credit Suisse AF in Zurich, said in a television interview with Bloomberg News. “We’d really need to see a further escalation to push prices higher. The risk premium in the market is already fairly sizeable. The next big move could leave the oil price lower again, below $100.”
Crude for April delivery climbed as much as $2.28 to $103.35 a barrel in electronic trading on the New York Mercantile Exchange. The contract, which expires tomorrow, was at $102.81 at 12:23 p.m. London time. The more-actively traded May future 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 $12.94 from $11.53 a week ago. Brent 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.
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 includes the U.S., the U.K. and France, as “the party of Satan.”
“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.”
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.
Output Halts
Libyan oil production halted by the country’s civil war is likely to remain suspended for the rest of this year, according to JPMorgan Chase & Co.
“Our operating assumption is that there will be very little Libyan oil exported in 2011,” said Lawrence Eagles, head of commodities research at JPMorgan in New York. “Clearly, political developments could change.”
Bank of America Merrill Lynch predicts that output will be “mostly offline” for the next six months and start to resume by the end of the year.
“We assume that Libyan oil infrastructure will not be severely dented during the military struggle, and that Libyan oil output will return to 2010 levels by the end of 2012,” Francisco Blanch, Merrill’s New York-based head of commodities Research, said in an e-mail.
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 reduced 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.
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
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