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Oil rises $2 as military action in Libya looms

Oil rises $2 as military action in Libya looms
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First Published: Fri, Mar 18 2011. 04 07 PM IST
Updated: Fri, Mar 18 2011. 04 07 PM IST
London: Oil rose more than $2 a barrel on Friday after the United Nations approved military action to contain Libyan leader Muammar Gaddafi, heightening geopolitical tensions in the oil-rich Middle East.
Front-month Brent rose $1.06 to $115.96 by 3:12pm, after earlier climbing above $117, the highest level in just over a week. US crude for April gained $1.37 to $102.79. It also rose more than $2 earlier in the session.
“The apparent move into a military endgame in Libya, together with the passing of the UN resolution and the escalation created by external involvement, is likely to represent the most immediate source of upside price risk for oil,” Barclays Capital analysts said in a note.
The UN Security Council, meeting in emergency session on Thursday, passed a resolution endorsing a no-fly zone to halt government troops now around 100 km from Benghazi, which Gaddafi threatened to storm showing “no mercy, no pity.”
The UN also authorised “all necessary measures” - code for military action - to protect civilians against Gaddafi’s forces.
Analysts said the involvement of foreign troops and likely escalation in violence would further delay the return of Libya’s 1.6 million barrels per day (bpd) of light, sweet crude to the market.
At the same time, the situation remained volatile in Bahrain, where earlier this week the authorities cracked down on Shi’ite protesters demanding reform by the Sunni monarchy, drawing criticism from the United States and Iran.
The involvement of Saudi Arabian troops and other forces from Gulf Cooperation Council (GCC) countries also raised tensions in Bahrain, which lies less than 100 kilometers from the hub of the Saudi oil industry.
Saudi Arabia’s King Abdullah will address the nation at 4:40pm, on Friday to issue a number of decrees, the royal court said in a statement released by the top oil producer’s state news agency late on Thursday.
Japan’s strongest earthquake on record a week ago and resulting nuclear crisis sent risk-averse sentiment coursing through global financial markets and has triggered some selling on volatile oil markets.
Engineers said on Friday burying a crippled nuclear plant in sand and concrete might be the only way to prevent a catastrophic radiation release, the method used to seal huge leakages from Chernobyl in 1986.
Edward Meir, senior commodities analyst at brokers MF Global, said oil prices might have risen too far considering the loss of demand from Japan, the world’s third largest economy and third biggest oil consumer after the United States and China.
“The extended paralysis with regard to the nuclear issue and the colossal damage sustained in the rest of the country suggests that Japan will be partially absent from the oil markets for some time to come,” he said in a note.
Japan bought billions of dollars to restrain a soaring yen on Friday, and traders reported intervention by European Central Banks to try to calm financial markets reeling from the earthquake, tsunami and nuclear explosions.
“This intervention should stabilise the yen and increase confidence that the Japanese economy will recover, and not cause contagion in the rest of the world,” said Julian Jessop, chief international economist at Capital Economics.
There was little impact on the dollar index, the focus for commodity markets mindful of a stronger dollar’s potential to weigh on oil prices.
“This is a yen story, not a dollar story,” Jessop said. “It is way down the list of things that are going to drive commodity markets considering what is happening in Libya.”
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First Published: Fri, Mar 18 2011. 04 07 PM IST
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