Brent crude rose over 1 per cent to near $114 a barrel as protests in Oman fuels concern about security of supply from the Middle East and North Africa even as top exporter Saudi Arabia pumps more.
Oman is the latest producer to feel the impact of the regional unrest, although its oil flow has not been affected. Revolt in Libya has cut as much as three quarters of the OPEC-member's output, prompting Saudi Arabia to step in and plug the supply gap to Libya's oil buyers.
Brent crude rose by $1.15 to $113.29 a barrel by 0708 GMT. US crude rose $1.39 at $99.27 a barrel. Both benchmarks posted their highest weekly close in 2.5 years last week.
"There is the continued threat that conflicts will spread in the region that produces a large amount of oil in the world," said Ben Westmore, a commodities economist at the National Australia Bank.
"There's been a bit of a contagion already," he said.
The worst-case scenario for oil markets would be an interruption to supply from Saudi Arabia. It holds most of the world's spare crude output capacity, and without it there is no producer that could fill supply disruption such as that stemming from Libya.
The impact on oil supply would also be severe if conflict were to spread to big suppliers such as Iran and Kuwait, Westmore said.
Protestors blocked roads into the industrial area of Oman's refined product export port Sohar TODAY. Product shipments continued unhindered, a port spokeswoman said.
Oman is a small oil producer pumping around 850,000 barrels per day, but its crude forms part of benchmark pricing for more than 10 million barrels per day (bpd) of crude shipped from the Middle East to Asia. Oman exports crude through the port at Mina al-Fahal.
Oman accounts for about 1 per cent of the global oil consumption and any disruption would have an impact on oil prices, mR Westmore said. "In terms of those countries who directly import from Oman, I think they can source oil from elsewhere," he said.
Violent revolt in Libya has shut down as much as three-quarters of its output of around 1.6 million barrels a day (bpd), according to some estimates.
Iran's oil minister has urged Saudi Arabia to refrain from taking a hasty decision on increasing its oil production after the popular uprising in Libya, the official IRNA news agency reported. Still, Iran is also selling more crude to refiners looking for alternatives to Libyan supplies.
JPMorgan increased late on Friday its 2011 Brent oil forecast to $108 a barrel, up from the previous $95, on tighter supply after Libyan output losses. It also raised its 2011 average forecast for WTI crude by 3.2 per cent to $96 a barrel.
"The new 2011 price forecast maps a projected outcome within a range of scenarios that could encompass the oil market over the next 12 months - ranging from a rapid normalisation of geopolitical risk to the loss of output in a major oil producer," JPMorgan said in its report.
Reuters
