SINGAPORE (Reuters) - U.S. crude futures hit a 2-1/2 year high on Tuesday on concern that violence in Libya could cut more of the OPEC-member’s output and that a similar story could play out in other top oil producers in North Africa and the Middle East.
As deadly clashes wracked Libya’s biggest cities, one international oil firm shut down as much as 100,000 barrels per day (bpd) of output, about 6 percent of production in Africa’s third-largest producer.
Other big oil firms said they were withdrawing staff as Libyan leader Muammar Gaddafi fought to hang on to power and dozens were reported killed in the capital, Tripoli.
U.S. crude for March delivery , which expires on Tuesday, touched its highest since October 2008 at $94.49 a barrel. The contract trimmed gains later to trade at $94.20 a barrel by 0659 GMT, still up more than $2 from late Monday.
Brent crude for April delivery rose $2.71 to $108.45 a barrel, its intra-day peak. On Monday, Brent hit a 2-1/2 year high of $108.70.
“The market is very nervous over news of violence in Libya, and that’s driving prices,” said Yinxi Yu, a commodities analyst with Barclays Capital.
“The situation threatens to blow out in the next few days, and it looks like the uncertainty in the region is not going to be resolved anytime soon.”
Libyan outages were the first impact on oil supply of a wave of protests in the world’s top oil-producing region that have buoyed crude prices and toppled leaders in Tunisia and Egypt.
Brent crude has risen more than 13 percent so far this year, while U.S. crude is up over 2 percent.
More of Libya’s 1.6 million bpd of output was under threat after the leader of the Al-Zuwayya tribe in eastern Libya said it would cut off exports unless authorities stopped violence against protesters.
In a move certain to anger Israel and exacerbate market anxiety over the changing political situation in the region, two Iranian ships entered the Suez Canal on Tuesday on their way to the Mediterranean.
Iran appears to be testing the state of affairs in the Middle East after the fall of Egyptian President Hosni Mubarak. A longstanding peace treaty with Egypt is crucial to Israel’s regional security.
The biggest concern for oil markets would be for supply disruptions from top oil exporter Saudi Arabia. The kingdom supplies around 10 percent of the world’s oil, but also holds most of the world’s spare capacity.
It is the only producer able to respond quickly with large volumes of oil to compensate for a serious supply outage.
“There is spare capacity to cover Libya’s production if there is a complete shutdown there, but if the unrest spreads to other parts of the Middle East, even the current capacity might not be enough,” said Yu.
To date, protests in Saudi have been low key. But majority Shi’ites in neighbouring Bahrain are protesting against the Sunni government and there is concern this could spread to the Shi’ite minority living in Saudi Arabia’s oil-producing eastern province.
International Energy Agency (IEA) chief economist Fatih Birol said on Tuesday that oil prices were in the danger zone and could rise further if turmoil continues in the Middle East.
“Oil prices are a serious risk for the global economic recovery,” Birol told reporters on the sidelines of a conference in Indonesia.
Member states would consider releasing oil from their emergency stocks if supplies were disrupted as a result of continuing turmoil in the Middle East, he added.
The IEA is adviser to 28 industrialised nations on energy policy.
Despite high prices and the threat to Libyan output, Saudi Arabia said on Monday that oil markets were well supplied.
“We’re much more focused on how the market balance is — is it sufficiently supplied? And the answer is ‘yes, abundantly’”, said Deputy Saudi Oil Minister Prince Abdulaziz bin Salman Al-Saud. “Therefore, does the situation warrant any kind of intervention? I don’t think so.”
As OPEC ministers gathered for a conference of oil producers and consumers in Riyadh, the prince reiterated the long-held Saudi view that $70 to $80 was the fair price for oil.
U.S. crude prices were also boosted by traders rushing to cover short positions in the Brent/WTI spread, which had blown out to a record $16 a barrel last week.
The April spread had narrowed to $10.47 by 0700 GMT, down $2.12 from the previous close.
U.S. oil will extend its gain to $97.33 per barrel, as a powerful wave (3) is progressing on the daily chart, according to Reuters market analyst Wang Tao.
Additional reporting by Randy Fabi; Editing by Ed Lane