BRENT CRUDE oil prices surged to more than $105 a barrel for the first time since 2008 yesterday on fears that spiralling violence in Libya could lead to wider supply disruptions from the Opec member.
US oil prices led the rally to surge by more than $5, their most in more than two years, as traders also rushed to cover short positions in the key Brent/WTI spread, which had blown out to an unprecedented $16 a barrel. The April spread narrowed to nearly $10 yesterday, its thinnest in weeks.
The focus was on deadly clashes in Libya, where one oil firm was shutting down some 100,000 barrels per day (bpd) of production and others evacuated staff. The leader of the al-Zuwayya tribe threatened oil exports to the West would be cut off unless authorities stopped violence.
“The market is on edge about the potential for Middle East and North Africa supply disruptions,” said Mike Wittner, head of commodities research Americas at Societe Generale. “If you’ve got reports that actual disruptions are starting to occur, it’s going to have a supportive impact. A lot of it is high-quality crude and that is important as well.”
The increasingly violent protests that appeared to put Muammar Gadafy’s four decades of rule in jeopardy were the realisation of weeks of mounting concerns that Egypt-inspired unrest would seep into nearby oil producers.
Brent futures, which have climbed more than $10 this year largely due to the increasing geopolitical risk premium, jumped $3.23 a barrel or 3.2 per cent to $105.75 a barrel by late trading yesterday, the highest since September 24th, 2008.
On Sunday, Sheikh Faraj al Zuway, the leader of the al-Zuwayya tribe in eastern Libya, told Al Jazeera: “We will stop oil exports to Western countries within 24 hours” should the violence not stop.
Some 90 per cent of Libyan oil exports come from the eastern region of Cyrenaica, epicentre of the revolt. Unrest there could pose a graver threat to oil supplies than in other nations if separatists targeted infrastructure and looked for a bigger slice of revenues, analysts say.
“Libya is a significant producer and exporter of good quality crude oil and threats by the tribal leader to stop production are worrisome,” said Christophe Barret, an oil analyst at Credit Agricole Corporate and Investment Bank.
Wintershall, the oil and gas exploration arm of BASF, said yesterday it was winding down Libyan oil production of as much as 100,000 barrels per day, about 6 per cent of output in Africa’s third-biggest producer.
Other companies said production was proceeding normally but they were withdrawing expatriate staff. – (Reuters)
