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OIL JUMPS 2% IN A DAY!

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Oil Climbs Above $112 on Libyan Armed Revolt, Dollar Weakness

By Mark Shenk - Apr 8, 2011 10:41 AM PT

 

 

 

Crude rose above $112 in New York for the first time in 30 months and Brent topped $126 on skepticism that Libyan output will rebound when fighting ends and as a weaker dollar increased demand for commodities.

 

Futures rose as much as 1.9 percent in New York as Barclays Capital said strikes on Libyan oilfields by forces loyal to Muammar Qaddafi ended hopes for a prompt resumption of exports, and will help send prices toward $130 a barrel. Raw materials surged as the dollar dropped to the lowest level against the euro in more than a year.

 

“Since the Libya unrest began, there’s been a re-coupling of the inverse relationship between the dollar and oil,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “The Middle East is being used as cover by speculators looking to send oil higher.”

 

Crude oil for May delivery rose $2.01, or 1.8 percent, to $112.31 a barrel at 1:18 p.m. on the New York Mercantile Exchange. The contract reached $112.41, the highest intraday price since Sept. 22, 2008. Futures are up 4 percent this week and are 32 percent higher than a year ago.

 

Brent oil for May settlement increased $3.42, or 2.8 percent, to $126.09 a barrel on the London-based ICE Futures Europe exchange. It touched $126.29, the highest price since Aug. 1, 2008.

 

The European benchmark traded at a $13.78-a-barrel premium over West Texas Intermediate, the oil traded in New York. London Brent, traditionally cheaper than WTI, has been higher than the Nymex grade since August because of ample U.S. stockpiles.

NATO Strikes

 

North Atlantic Treaty Organization jets have struck 23 targets in the past two days in Libya, Rear Admiral Russell Harding, the deputy commander of the NATO mission, said in Naples, Italy. The alliance has hit T-72 tanks, armored vehicles, rocket launchers and ammunition dumps as its operations “steadily increase,” he said.

 

The rebels’ six-week drive to topple Qaddafi’s 42-year rule has reached a military impasse as regime forces outgunned the opposition. Oil output from Libya would still be less than a third of its pre-conflict level even if the rebels took control of the country’s fields, Nomura Holdings Inc. said in a report.

 

“Libya is down for the count,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “Kuwait is the only country to come back 100 percent after a major disruption over the last 30 years. Iran, Iraq and Venezuela haven’t been able to get back to pre-disruption production levels, so the outlook for Libya isn’t promising.”

Falling Output

 

Iran, the second-biggest oil producer in the Organization of Petroleum Exporting Countries, increased output by 45,000 barrels a day to 3.7 million in March, according to data compiled by Bloomberg. The country pumped more than 5 million barrels a day between 1972 and 1978 before the Iranian revolution in 1979.

 

Output in OPEC member Iraq hasn’t recovered since the country’s invasion of Kuwait in 1990 touched off the Persian Gulf War. Venezuelan production hasn’t rebounded since a strike in 2002 and 2003 crippled the country’s oil industry.

 

“The Libyan oil has been off the market for a while now,” said Tom Bentz, a broker with BNP Paribas Commodity Futures in New York. “Oil continues to rise on worries about Libyan oil production and the continued weakness of the dollar. The rally in oil prices should start to have an impact on the economy; maybe it already is.”

Nigerian Poll

 

Voters in Nigeria, Africa’s biggest oil producing-country, go to the polls tomorrow to choose members of parliament in the first of a three-stage general election.

 

“We could easily come in Monday and see further disruptions because of the Nigerian election,” said Phil Flynn, vice president of research at PFGBest in Chicago. “This is critical because Nigeria produces high-quality crude that’s similar to the missing barrels from Libya.”

 

The dollar slipped as much as 1 percent to $1.4444, the lowest level since Jan. 10, 2010. A weaker U.S. currency reduces the appeal of commodities, which are priced in dollars.

 

“If you want to know why commodities are up, take a look at the dollar,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The dollar is dropping because the Fed is out of whack with the rest of the globe when it comes to rate expectations.”

 

The European Central Bank yesterday increased interest rates for the first time in almost three years to curb inflation. Federal Reserve Bank of Atlanta President Dennis Lockhart said in Knoxville, Tennessee, that the ECB’s decision to raise borrowing may put pressure on the dollar.

Commodity Rally

 

The Thomson Reuters/Jefferies CRB Index of 19 raw materials climbed 1.1 percent to 368.35, the highest level since Sept. 25, 2008. Gold futures for June delivery rose $14, or 1 percent, to $1,473.30 an ounce, after touching a record $1,476.20 on the Comex in New York.

 

Oil volume on the Nymex was 400,450 contracts as of 1:16 p.m. in New York. Volume totaled 696,794 contracts yesterday, 14 percent below the average of the past three months. Open interest was 1.57 million contracts.

 

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

 

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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