Oil Surges to End Quarter at Two-and-a-Half Year High on Libya

By Margot Habiby, Thursday, March 31, 3:15 PM

March 31 (Bloomberg) -- Oil surged in New York to end the quarter at the highest price in two and a half years amid concern that the Libyan conflict will prolong production cuts.
Prices rose 2.4 percent after troops loyal to Libyan leader Muammar Qaddafi retook control of the oil port of Ras Lanuf and were shelling Brega, another energy hub. Libyan oil production dropped 72 percent in March to a 49-year low, according to a Bloomberg News survey of oil companies, producers and analysts.
“Events in the Middle East, particularly the fighting that continues to be going on in Libya, are providing support for the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market seems to be searching for a catalyst to continue the rally.”
Crude for May delivery climbed $2.45 to $106.72 a barrel, the highest settlement since Sept. 26, 2008, on the New York Mercantile Exchange. Futures rose 17 percent from January through March in the best quarter since the period ended in June 2009. Oil increased 10 percent in March, extending the longest monthly rally since the contract started trading in 1983.
Brent oil for May settlement on the London-based ICE Futures Europe exchange rose $2.18, or 1.9 percent, to $117.31 a barrel at 2:38 p.m. in New York. Prices are up 24 percent this quarter.
Libyan oil production tumbled by 995,000 barrels in March to 390,000 barrels a day in the Bloomberg survey. Libya was the third-largest oil producer in Africa before the conflict and pumped 1.59 million barrels a day in January, according to data compiled by Bloomberg.
Lower Production
The Organization of Petroleum Exporting Countries’ crude output dropped 363,000 barrels, or 1.2 percent, in March to an average 29.022 million barrels a day, the lowest level since September, as increases from Saudi Arabia failed to make up for the decline in Libyan production. Saudi output rose by 300,000 barrels a day to 9 million, the survey showed.
Rebels withdrew from Ras Lanuf in the face of artillery and rocket attacks over the past two days after advancing toward Qaddafi’s hometown of Sirte. Many insurgents retreated from Brega, east of Ras Lanuf, to regroup in Ajdabiya farther along the coast, about 100 miles (160 kilometers) from the rebel stronghold of Benghazi, the Associated Press said.
President Barack Obama and U.K. Prime Minister David Cameron said they may send arms to opposition forces. The U.S. and U.K. have deployed special operations forces and intelligence agents in Libya to assist with targeting allied air strikes and to forge contracts with Libyan rebels, the New York Times reported, citing unnamed officials in both countries.
The strife in Libya, holder of Africa’s largest oil reserves, is the bloodiest in a wave of uprisings that has toppled the leaders of Tunisia and Egypt and spread to Algeria, Bahrain, Iran, Oman, Syria and Yemen.
Resistance at $107
Oil futures traded as high as $106.83 a barrel, failing to break through technical resistance at $106.95, the 30-month high reached in intraday trading March 7. Prices often don’t extend gains when traders’ sell orders are clustered at specific levels, creating so-called price resistance.
“Whatever Libyan news there is, is in the market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We’re now approaching the recent highs for this move. Let’s see if we can blow through $107 and head higher.”
Oil also rose amid signals that the economy in the U.S., the world’s largest oil consuming country, is improving and will spur fuel demand.
Fewer Americans filed applications for unemployment benefits last week, a sign the labor market is firming heading into the second quarter. Jobless claims dropped by 6,000 to 388,000 in the week ended March 26, Labor Department figures showed today in Washington. Claims were at 375,000 in the week ended Feb. 25, the lowest level since July 2008.
U.S. Economy
U.S. consumer confidence rose for the first time in five weeks as Americans said their finances were in better shape. The Bloomberg Consumer Comfort Index improved to minus 46.9 in the period ended March 27 from a seven-month low of minus 48.9 the prior week.
Total products supplied, a measure of fuel consumption, fell 3.7 percent last week to 18.6 million barrels a day, the lowest level since November.
Total crude inventories climbed 2.95 million barrels in the week ended March 25 to 355.7 million as imports increased for a fourth week, the Energy Department said. It was almost double the median estimate for a gain of 1.5 million barrels forecast by analysts in a Bloomberg News survey.
“Investors are torn between the inventory levels in the U.S. and event risk in the Middle East,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney.
Oil volume in electronic trading on the Nymex was 468,250 contracts as of 2:39 p.m. in New York. Volume totaled 559,992 contracts yesterday, 32 percent below the average of the past three months. Open interest was 1.53 million contracts.