Oil Rises on Libya Disruption; Goldman Sachs Sees ‘Upside Risk’

Feb. 24 (Bloomberg) -- Oil climbed to the highest in 30 months inLondon as Libya’s violent uprising reduced supplies from Africa’sthird-biggest producer.

Brent roseabove $119 a barrel on estimates the revolt caused Libya to lose as muchas two-thirds of its oil output. Futures for April delivery in New Yorkgained for a sixth day, after climbing above $100 a barrel. The cutscreate “significant upside risk” to prices by reducing OPEC’s ability toofffset any escalation of supply disruptions in the Middle East,Goldman Sachs Group Inc. said.

“Theevents in Libya and North Africa have brought geopolitical risk backonto the radar,” Soozhana Choi, head of Asian commodities research atDeutsche Bank AG in Singapore, told Rishaad Salamat on BloombergTelevision’s “On the Move”. “How much higher prices can go reallydepends on the spread of protests in the region.”

Brent oil for April settlement rose as much as $8.54, or 7.7 percent,to $119.79 a barrel on the London-based ICE Futures Europe exchange, thehighest since Aug. 21, 2008. The contract traded at $117.10 at 3:59p.m. Singapore time. It has rallied 15 percent this week.

Crude for April delivery on the New York Mercantile Exchange gained asmuch as $5.31, or 5.4 percent, to $103.41 a barrel in electronictrading. Yesterday, it added $2.68 at $98.10, the highest settlementsince Oct. 1, 2008.

Libya, whichpumps 1.6 million barrels a day of oil, is the ninth-largest produceramong the 12 members of the Organization of Petroleum ExportingCountries, shipping most of its crude and fuels across the Mediterraneanto Europe. The country has the largest reserves in Africa.

Output Halt

As much as 1 million barrels of Libya’s daily oil production may havebeen shut, Barclays Capital said in a report yesterday. Goldman Sachsestimated disruptions at 500,000 barrels a day. Total SA and OMV AGbecame the latest energy producers to scale back Libyan operations,following Eni SpA, RWE AG and BASF SE’s Wintershall unit. China NationalPetroleum Corp. said it relocated 47 of its Libyan-based workforce.

New York futures retreated from anintraday high of $100 a barrel yesterday after Saudi Arabia and othercountries said they might not wait for an emergency meeting of OPEC toincrease output, according to a person with knowledge of producer-nationpolicy. Any extra supply would be conditional on requests for morecrude, the person said.

“One reasonwe haven’t seen a far more aggressive rally is because from an OPECspare capacity perspective they are far healthier now,” Choi said.“Beyond spare capacity, if you look at commercial inventories, they arequite healthy as well.”

U.S. Inventories

Crude stockpiles in the U.S., the world’s largest oil user, climbed163,000 barrels last week, the industry-funded American PetroleumInstitute said yesterday. An Energy Department report today may showsupplies increased 1.1 million barrels in the seven days ended Feb. 18from 345.9 million, according to the median estimate of 15 analystssurveyed by Bloomberg News.

Libya isthe latest nation to be rocked by protests ignited by the ouster ofTunisia’s president last month and fanned by the Feb. 11 fall ofEgyptian President Hosni Mubarak. Disturbances have spread to Iran,Bahrain, Yemen and Algeria.

Unrest inBahrain, which is linked to Saudi Arabia by a 26- kilometer (16-mile)causeway and whose capital, Manama, is a four-hour drive from its Saudicounterpart, Riyadh, has in the past spread across the border. In 1995,the Saudi government arrested a large number of Shiite Muslims onsuspicion of involvement in protests taking place in Bahrain, accordingto New York-based Human Rights Watch.

$220 Oil

Shiites make up between 60 and 70 percent of the Bahraini populationand are a significant minority in Saudi Arabia’s Eastern Province, wheremost of the country’s oil is produced.

Prices may surge to $220 a barrel if more production is halted in Libyaand Algeria, analysts at Nomura Holdings Inc., led by Michael Lo inHong Kong, said yesterday in a note. Algeria is also an OPEC member.

“There is room for spikes, possibly to$175,” Carl Larry, president of Oil Outlooks & Opinions LLC inHouston, told Susan Li on Bloomberg Television’s “First Up.” “Somethinglike that would have to take an extreme situation, more unrest in theMiddle East, particularly Saudi Arabia.”

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net