Oil hits 2-1/2-year high, Libya offsets Japan

By @ibtimes on

Oil climbed to its highest level in 2- years on Friday as supply cuts stemming from attacks on Libyan oil fields offset demand concerns spurred by a major aftershock in Japan.

Brent crude surged to an intraday high of $123.50 a barrel, the highest since August 2008. The front-month May contract traded up 74 cents at $123.41 by 12:41 a.m. EDT.

U.S. crude rose 81 cents to $111.11, after touching a peak of $111.19 earlier, the highest since September 2008.

Surging oil, along with record gold and food prices, have stoked inflationary concerns for governments worldwide due to the potential adverse impact on economic growth of the rising cost of foodstuffs and raw materials.

Oil prices are at a point where we could begin to see demand destruction, said Mike Wittner, head of commodities research at Societe Generale.

It already looks like the United States may just be showing some signs of demand destruction. The United States is always the country where you see the impact the most because there are no subsidies and hardly any tax burden.

Unrest in the Arab world has added a $20-25 premium to oil prices since the toppling of regimes in Tunisia and Egypt in the last few months, Wittner said.

The International Monetary Fund on Thursday said the global economy was entering a period of scarcer oil, adding that tighter fundamentals could cause price spikes rivaling the 2008 run-up that drove oil to nearly $150 a barrel.

LIBYAN UNREST

In Libya, rebels and forces loyal to embattled leader Muammar Gaddafi exchanged accusations over who had attacked oil fields and infrastructure vital to both sides.

Rebels say government attacks on three different installations in the east have halted production of the oil they desperately need to finance the uprising against Gaddafi.

The seven-week old civil war has cut Libya's 1.6 million barrels per day output by 80 percent to between 250,000 and 300,000, a senior government official said.

The tanker Equator sailed from the port of Marsa el-Hariga, apparently with the first cargo of crude sold by rebels since their uprising began in February. Oil traders said the cargo, vital to fund the uprising, was headed for China.

Obviously this sets a precedent, but we remain skeptical that this will materially increase supply as resumption of production still faces many obstacles, said J.P. Morgan in a research note.

Fellow OPEC member Nigeria postponed parliamentary elections again in some areas, but polls will go ahead in most of the country on Saturday as planned.

Worries over OPEC supplies offset demand worries exacerbated by a 7.4-magnitude earthquake struck Japan, which is recovering from last month's devastating quake and tsunami that crippled a nuclear power plant and damaged some refineries.

Large parts of northern Japan were without electricity following the latest of many aftershocks, the biggest since last month's quake.

(Editing by Ed Lane)

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