Crude Oil Futures Rise to 30-Month High on Fighting in Libya

Oil futures rose to the highest level in more than 30 months as Libyan rebels fought loyalists at an oil port, adding to concern that protracted conflict in the Middle East and North Africa will curtail supply.

Oil gained 0.5 percent as fighting centered around Brega, a Mediterranean seaport. Yemeni police clashed with anti- government protesters in the southwestern city of Taiz, Sadek al Shujaa, chief of a local clinic, said in a telephone interview.

“The trend continues to be up, and the market continues to be led by all the events in the Middle East,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “There are more worries about Middle East crude.”

Crude for May delivery advanced 53 cents to $108.47 a barrel on the New York Mercantile Exchange, the highest settlement level since Sept. 22, 2008. Prices are up 28 percent from a year ago.

Brent oil for May settlement climbed $2.36, or 2 percent, to $121.06 a barrel on the London-based ICE Futures Europe exchange.

The European benchmark traded at a premium of $12.59 a barrel to U.S. futures. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21 as unrest spread in the Middle East and North Africa and stockpiles climbed at Cushing, Oklahoma, the delivery point for New York futures. The spread averaged 76 cents last year.

Libyan Output

Libya has Africa’s largest crude-oil reserves and was the continent’s third-largest producer before the conflict began. Output there slumped to a “trickle” by March 11, according to the International Energy Agency.

Italy rejected a reported cease-fire proposal by Qaddafi and said it would recognize the opposition as the legitimate government, following a similar move by France.

“It’s becoming increasingly clear that the situation in Libya may be prolonged,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “The more one looks at uprisings in the Middle East, the more one realizes they will not be easy to resolve.”

At least 15 demonstrators are dead and hundreds are injured in the clash in Yemen, according to Shujaa. Protesters are demanding an end to the 32-year rule of President Ali Abdullah Saleh.

Wave of Uprisings

The strife in Libya and Yemen is the latest in a wave of uprisings that has toppled the leaders of Tunisia and Egypt and spread to Algeria, Bahrain, Oman and Syria. Oil prices have climbed 18 percent since the ouster of Tunisian President Zine El Abidine Ben Ali on Jan. 14.

“The fighting in Brega, the key Libyan oil port, between the rebels and the Qaddafi forces is encouraging further uncertainty in the market,” said Matt Smith, a commodities analyst for Summit Energy Services Inc. in Louisville, Kentucky. “The violence in Yemen is adding further support to crude.”

Yemen, which borders Saudi Arabia, OPEC’s largest oil producer, is located along the Bab al Mandab, a strait linking the Red Sea and the Gulf of Aden, which the U.S. Energy Department lists as one of seven “world oil transit chokepoints.”

An estimated 3.2 million barrels a day of oil passed through Bab al Mandab in 2009, according to the Energy Department. A disruption to the strait between Yemen on the east and Djibouti and Eritrea on the west may prevent tankers from the Persian Gulf and Gulf of Aden from reaching the Suez Canal and the Mediterranean Sea.

Production Disruptions

Royal Dutch Shell Plc and Total SA halted oil production at fields in Gabon and Tullow Oil Plc’s output is “severely disrupted” because of a workers’ strike.

Crude fell earlier as the New York Times reported at least two of Muammar Qaddafi’s sons are seeking his ouster.

Qaddafi’s sons are proposing pushing their father aside to transition to a constitutional democracy under the direction of his son Saif al-Islam Qaddafi, the Times reported, citing a diplomat and a Libyan official briefed on the plan.

Prices are tempered by “the talk that Qaddafi’s son and others are trying to arrange exit strategies there,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “If that situation calms down, then we’ll see several dollars come off the price.”

A person close to Qaddafi’s sons Saif and Saadi said the father appeared to be willing to go along with his sons’ transition plan, the Times reported. Ali al-Essawi, a rebel representative, said in Rome today that it was unacceptable to replace Qaddafi with one of his sons.

Long Position Rises

Net-long positions in oil held by hedge funds and other large speculators increased by 1.8 percent, to 292,066 in the seven days ended March 29, the Commodity Futures Trading Commission’s weekly Commitments of Traders report released at the end of last week.

Oil volume in electronic trading on the Nymex was 407,375 contracts as of 4:25 p.m. in New York. Volume totaled 554,646 contracts April 1, 32 percent below the average of the past three months. Open interest was 1.55 million contracts.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

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

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