Oil prices rally despite Saudi output pledge

1st March 2011, Comments 0 comments

Oil advanced Tuesday, despite OPEC kingpin Saudi Arabia's pledge to ensure sufficient supplies, as raging violence in Libya, Africa's fourth biggest crude producer, sparked global supply jitters.

Brent North Sea crude for delivery in April rose $1.75 to $113.55 per barrel.

New York's light sweet crude for April, known as West Texas Intermediate (WTI), gained $1.34 cents to $98.31 a barrel.

"As the violence rages on in Libya, there are mounting fears that the country's supply disruptions will be prolonged and that other producers in the immediate vicinity will suffer similar outages due to political unrest," said Barclays Capital analyst Helima Croft.

"The foreign companies that have evacuated their employees and halted their operations may be reluctant to restart production if the political and security environment in Libya remains unsettled.

"The east, where most of the oil fields are located, could be particularly problematic."

The West heaped pressure on Libya's Moamer Kadhafi on Tuesday after loyalists tried to retake a key city near Tripoli following a show of defiance by the veteran leader.

Overnight, heavily-armed pro-Kadhafi militiamen attempted to retake Zawiyah, a middle-class dormitory town just 60 kilometres (40 miles) west of the capital, residents told AFP by telephone.

But they fell back when they met resistance from armed opposition supporters in control of the city centre.

Libya's opposition, meanwhile, said it was resuming exports from eastern oilfields now under its control which had been suspended during the unrest, and had loaded a tanker with one million barrels of crude for China.

Brent oil had soared close to $120 last week on the back of heightened fears about supply disruption, due to a wave of unrest in Libya and other countries in the Middle East.

"With Libya engulfed by violence, there are fears that Algeria may be the next big energy producer to become destabilised by anti-government demonstrations," added Croft.

"Oman should also be added to the list of MENA (Middle East and North Africa) countries facing a disruption threat, though it still ranks behind Libya and Iraq, in our view."

Saudi Arabia, OPEC's largest producer, said Monday it was committed to oil market stability after Libya's output dropped due to the violent unrest in the nation -- which produces a light, sweet crude highly prized by the market.

The Saudi government said the cabinet had met and discussed the protests shaking Libya "and their repercussion on oil production in that country."

Saudi Arabia "is committed to the stability of the market" and to ensuring that oil supplies remain available, a statement said, adding that the kingdom hoped Libya's production returns to normal soon.

Sucden analyst Myrto Sokou told AFP that traders were still concerned about the potential for further unrest in the Middle East.

"The tensions across the Middle East and North Africa have fairly eased, as oil market participants have digested the news about serious oil supply disruptions in Libya that drove crude oil prices above $100," said Sokou.

"Saudi Arabia's move to increase oil production definitely provided further support to the oil market.

"However, all eyes remain on (the region) ... regarding potential escalating tensions across the Middle East, and more specifically Saudi Arabia, that could drive crude oil prices even higher -- towards $150 per barrel."


© 2011 AFP

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