Brent oil up on intense Libyan fighting

By @ibtimes on

Brent oil prices rose on Wednesday on intensified fighting in Libya and U.S. prices fell after data showed crude inventories rose more than expected last week, widening Brent's premium against U.S. crude.

Brent crude for April delivery gained $2.54 to $115.60 a barrel by 1:16 p.m. EST (1816 GMT), having earlier hit $116.18.

U.S. April crude fell 33 cents to $104.69 a barrel, after hitting an early high of $105.92.

The premium of Brent crude over U.S. benchmark West Texas Intermediate crude ballooned more than $2 to above $11 a barrel, after dipping below $7 on Tuesday.

Muammar Gaddafi's forces struck an oil pipeline leading to the Es Sider town and dropped bombs on storage tanks in the Ras Lanuf oil terminal area in the eastern section of Libya that is rebel-controlled.

But Libyan state television blamed the explosions on al Qaeda-backed armed elements.

Gaddafi's forces were closing in on the rebel-held main square of Zawiyah, where fighting has led to the closure of one of Libya's biggest refineries.

HIGHER U.S. STOCKPILES

U.S. crude prices weakened after data from the U.S. Energy Information Administration showed crude inventories rose 2.51 million barrels last week, dwarfing the forecast for an increase of just 400,000 barrels in a Reuters poll.

More telling for U.S. crude, crude stocks at the key delivery hub in Cushing, Oklahoma, soared 1.69 million barrels to a record 40.26 million barrels.

But losses for U.S. crude were limited as the weekly data showed drawdowns for gasoline and distillate inventories were bigger than expected, reflecting improving demand.

PROLONGED STRUGGLE?

Perception of prolonged trouble in Libya was driving the rally in oil prices, said Christopher Bellew, an oil trader at Bache Commodities in London.

As the outlook for Western intervention looks less likely -- which would bring things to a quick conclusion -- then we are looking at a prolonged struggle, he said.

About 1 million barrels per day of Libya's output have been shut by the raging conflict. Libya, a member of the Organization of the Petroleum Exporting Countries, has a normal production of 1.6 million bpd.

Libyan oil trade has been paralyzed as banks decline to clear payments in dollars due to U.S. sanctions, though Austrian energy group OMV said it had been buying small amounts of Libyan crude oil and would continue to do so.

NATO Secretary-General Anders Fogh Rasmussen said the alliance was not looking to intervene in Libya, but its military was ready to respond at short notice.

World powers were still considering imposing a no-fly zone over the Libya, with British Prime Minister David Cameron seeking international support for any measures to be taken.

Oil prices fell on Tuesday after Kuwait's oil minister said OPEC was considering raising output due to the Libyan outage.

But an OPEC delegate said on Wednesday that the group saw no need for an emergency meeting to discuss raising output.

Leading OPEC producer Saudi Arabia is already pumping more oil -- up to 9 million barrels per day -- to keep supplies available if needed.

OPEC member Algeria's oil minister, Youcef Yousfi, told an industry conference in Houston on Wednesday that there was no shortage of supply, despite the disruptions in Libya, and that OPEC would respond to any real shortage.

(Additional reporting by Robert Gibbons, David Sheppard and Janet McGurty in New York; Claire Milhench in London; Alejandro Barbajosa in Singapore; Editing by Walter Bagley)

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