Oil heads for biggest weekly gain since 2009 on Libya, economy

2/25/2011

Oil headed for its biggest weekly gain in two years on concern the turmoil that has cut Libya’s output may spread to other parts of the Middle East, and on speculation U.S. economic growth will boost fuel demand.

Crude surged to a 29-month high in New York on Thursday amid estimates that Libya’s output was cut by as much as two-thirds. It fluctuated after the U.S., Saudi Arabia and the International Energy Agency made assurances they can compensate for any disruption of Libyan supplies. Futures rose as much as 2 percent today before U.S. data that may show economic growth quickened and consumer confidence improved.

“There’s still big uncertainty regarding the amount of production losses in Libya and who will fill the gap,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

Crude for April delivery gained as much as $1.92 to $99.20 a barrel in electronic trading on the New York Mercantile Exchange and was at $97.89 a barrel at 11:35 a.m. London time. Prices have risen more than 13 percent this week, the biggest gain since the five days ended Feb. 27, 2009.

Brent crude for April settlement was up 70 cents at $112.06 a barrel after rising as high as $113.91 on the London-based ICE Futures Europe exchange. Thursday, it climbed to $119.79, the highest since Aug. 22, 2008. Brent is up 9.3 percent this week, the most since October 2009.

The Commerce Department may say Friday the U.S. economy expanded at a 3.3 percent rate in the fourth quarter, faster than the 3.2 percent pace the estimated in January, according to the median estimate of economists in a Bloomberg survey.

U.S. crude supplies climbed 822,000 barrels to 346.7 million in the week ended Feb. 18, the Energy Department said Friday in a weekly report. Inventories were forecast to climb by 1.1 million barrels, according to the median of 15 analyst estimates in a Bloomberg News survey.

Crude advanced above $100 this week as violence in Libya forced companies including Total SA and Eni SpA to halt production. Libyan leader Muammar Qaddafi vowed to fight a growing rebellion until his “last drop of blood.” As much as 1 million barrels of the country’s daily output may have been shut, according to a Wednesday estimate from Barclays Capital.

Libya, which pumps 1.6 million barrels of oil a day, is the ninth-largest producer among the 12 members of OPEC, shipping most of its crude and fuels across the Mediterranean to Europe. The country has the largest reserves in Africa.

Prices swung the most in a year Thursday as Saudi Arabia and the IEA moved to allay concern that Libya’s lost output would lead to a supply shortfall. Brent traded in a range of $10.19, the most since Sept. 29, 2009, while New York’s West Texas Intermediate fluctuated in a range of $7.79 a barrel.

The Paris-based IEA said it is ready to release emergency stockpiles, if needed. Saudi Arabia and other members of the Organization of Petroleum Exporting Countries said they won’t wait for an emergency meeting of the group to increase output, according to a person with knowledge of producer-nation policy.

OPEC is prepared to meet any shortage if needed, Saudi Arabia Oil Minister Ali al-Naimi said Tuesday. The country pumps 8.4 million barrels a day and says it has the ability to bring on a further 4 million.

The production cuts in Libya were the first instance of crude supplies being reduced by the civil unrest spreading through the Middle East and North Africa.

Protests ignited by the ouster of Tunisia’s president last month and fanned by the Feb. 11 fall of Egyptian President Hosni Mubarak have also spread to Yemen and Bahrain, prompting Saudi Arabia, the world’s biggest oil exporter, to introduce moves intended to increase living standards.

While OPEC spare capacity is sufficient to make up for any shortfall from Libya, there is a “significant upside risk” to prices if the unrest reduces supplies from other oil-producing countries, Goldman Sachs Group Inc. said in a Wednesday report.

Nomura Holdings Inc. predicted on the same day that oil prices may surge to $220 on the Libyan outages and any expansion into neighboring Algeria.

Thursday the Nymex boosted the margin requirement on its oil futures for the first time since March 2009 and the IntercontinentalExchange Inc. raised its rates for the second day in a row. Margins for speculators on the Nymex will increase to $6,075 per contract from $5,063 after the close of trading today, according to a notice on the website of the CME Group, Nymex’s parent.

“If you have the margin raised, that takes capital out of your position,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “You have to reduce your position to balance your margin account.”

Oil may gain next week amid the Middle East turmoil, a Bloomberg News survey showed. Twenty-three of 40 analysts, or 58 percent, forecast WTI futures will climb through March 4. Last week, 44 percent said crude would increase.