Brent crude futures slipped on Thursday but remained above $115 a barrel, as forces loyal to Libyan leader Muammar Gaddafi launched a fresh bombardment on the eastern Libyan oil town of Ras Lanuf, triggering fears of long-term damage to the country's oil infrastructure.
Bombs or missiles were landing a few kilometers from Ras Lanuf oil refinery, a Reuters witness said, a day after an oil pipeline leading to Es Sider was damaged.
What we are looking at is possible damages to the oil installations. Up to now we still had the residually optimistic scenario, but if oil installations are being damaged, there is a completely different situation. We may have to restructure everything in the medium term to adapt to a substitute to Libyan oil, Christophe Barret from CA CIB said. It means Libya could remain out of the picture for a long time.
There are long run concerns over infrastructure damage, VTB Capital analyst Andrey Kryuchenkov said.
Brent crude for April were 59 cents lower to $115.35 a barrel at 1050 GMT after soaring almost $3 on Wednesday.
U.S. crude futures fell 44 cents to $103.95 after touching a 2-1/2-year peak of almost $107 earlier this week.
Attention is still focused on Libyan oil exports after an official from the East Libya oil company AGOCO told Reuters the company is making arrangements to market oil directly to foreign buyers, instead of through its state-owned parent.
The oil port of Brega ran out of crude oil stocks, forcing crude tankers to cancel shipments or travel to Saudi Arabia, a source told Reuters. Libya turned away an oil tanker hired by Chinese oil trading firm Unipec to lift 2.0 million barrels of Es Sider crude, a trading source said Thursday.
The large explosions and enormous columns of smoke from storage tanks and other facilities in Ras Lanuf, close to the Es Sider terminal, are perhaps more than merely symbolic, Barclays Capital oil analysts headed by Paul Horsnell said.
They represent a final fading of any residual realistic hope that the outage of Libyan oil could prove to be anything other than prolonged.
PRESSURE MOUNTS ON LIBYA
International pressure continues to mount after Russia said it would ban all weapons sales to Libya, while Germany ordered a freeze on bank accounts held by the Libyan central bank and the Libyan Investment Authority.
Confirming previous non-Libyan estimates, Shokri Ghanem, chairman of Libya's National Oil Corp, said production had been cut to about half a million barrels per day from 1.6 million bpd by the war, as many foreign and local workers had left oilfields.
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.
It appears that most of Libya's bridges with OECD countries in particular are already aflame or may have already been burned, Barclays Capital said.
One can now easily imagine circumstances in which Libya's previously very short-haul exports of crude oil become very long-haul indeed.
Saudi Arabia has increased production to 9 million bpd, almost 1 million bpd above its OPEC target. The kingdom says it holds spare capacity of 3.5 million bpd. Still, an OPEC delegate said on Wednesday the group saw no need for an emergency meeting to discuss raising output.
On Wednesday, U.S. light crude fell after stockpiles at the pricing point for benchmark West Texas Intermediate at Cushing, Oklahoma, surged 1.7 million barrels to a record of almost 40.3 million barrels, according to the U.S. Energy Information Administration.
That caused the discount of WTI to European marker Brent to widen, trading at $11.31 a barrel by 1000 GMT.
Total U.S. crude inventories rose 2.5 million barrels last week, the EIA said, dwarfing the forecast for an increase of just 400,000 barrels in a Reuters poll. The weekly inventory data also showed drawdowns for gasoline and distillates were bigger than expected, reflecting improving demand.
(Additional reporting by Alejandro Barbajosa in Singapore; editing by James Jukwey)