Oil Jumps to 31-Month High on Concern Bin Laden Death Will Cause Reprisals

Crude oil jumped to the highest price since September 2008 amid concern that the death of al-Qaeda leader Osama bin Laden will spur retaliatory attacks and disrupt supplies.

Oil climbed as much as 0.8 percent after dropping the most in almost three weeks in New York after President Barack Obama said U.S. forces killed bin Laden in a firefight yesterday in Pakistan. Stocks rose, pushing up the Standard & Poor’s 500 Index for a fifth day.

“The market realizes that with bin Laden out of the picture, the risk of a reprisal is high, so you don’t want to celebrate too soon,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The stock market seems to be rallying, which could boost demand.”

Oil for June delivery rose 63 cents, or 0.6 percent, to $114.56 a barrel at 11:31 a.m. on the New York Mercantile Exchange. Earlier, it touched $114.83, the highest level since Sept. 22, 2008. The contract gained 6.8 percent last month and has risen 33 percent in the past year.

Brent crude for June settlement gained 25 cents to $126.14 a barrel on London’s ICE Futures Europe Exchange.

The S&P 500 rose 0.4 percent to 1,369.63. The Dow Jones Industrial Average gained 57.82 points, or 0.5 percent, to 12,868.36.

The dollar fell 0.5 percent to $1.4886 per euro, boosting the appeal of commodities as an alternative investment. It touched $1.4897, the lowest level since Dec. 7, 2009.

Risk Increase

Earlier, oil tumbled as much as 2.7 percent on the announcement that bin Laden was dead almost 10 years after the Sept. 11, 2001, attacks that he orchestrated.

“It is unlikely that the oil industry will see his death as marking a seminal shift in oil-market security, and arguably there has been an incremental increase in security risks in the short term,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York, in a client note. Bin Laden’s death “is arguably less of a blow” to al-Qaeda than protests in the Middle East and North Africa, he said.

Oil has climbed 33 percent in London and 25 percent in New York this year as revolts that overthrew the governments in Tunisia and Egypt raised concern that supplies from the Middle East would be disrupted as protests spread. Fighting between rebels and forces loyal to Libyan leader Muammar Qaddafi has shut 1.3 million barrels a day of output in the country that was Africa’s third-largest producer.

The Saudi-born bin Laden, who helped found al-Qaeda in 1988 after fighting Soviet troops in Afghanistan, was 54.

For the U.S. public, bin Laden was the face of terrorism. He appeared in videotapes threatening strikes against the West, including a message praising the Sept. 11 attacks as “divine blows” against America.

Oil Attacks

Al-Qaeda and bin Laden encouraged attacks on oil production and distribution facilities as a way to damage the economies of the U.S. and Europe. In February 2006, Saudi Arabian security guards foiled the group’s attack on the Abqaiq oil processing center in Saudi Arabia, preventing disruption to exports from the facility which handles two-thirds of the supply of the world’s biggest producer.

“To the extent that bin Laden was a symbolic rallying point for the wider forces of terrorism, there may in fact be some increased risk of retaliation in the near future,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.

Helping to restrain prices were reports showing that U.S. manufacturing cooled in April and a Chinese manufacturing index declined more than forecast last month. The two countries are the world’s largest energy consumers. Slowing economic growth and manufacturing can cool fuel demand.

Manufacturing

The Institute for Supply Management’s manufacturing index for the U.S. fell to 60.4 last month from 61.2 in March, the Tempe, Arizona-based group said today. The April reading exceeded the 59.5 median forecast in a Bloomberg News survey.

China’s Purchasing Managers’ Index slipped to 52.9 from 53.4, the logistics federation and statistics bureau said yesterday. That was below the median forecast of 53.9 in a Bloomberg News survey of 20 economists.

Hedge funds and other traders raised their bullish bets on oil for a second week to the highest level in three weeks. Net- long positions in oil increased by 11,202 futures and options combined, or 3.9 percent, to 301,118, in the week ended April 26, according to the Commodity Futures Trading Commission’s Commitments of Traders report. The level peaked at 311,632 in the week ended March 8.

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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