LONDON – Oil prices rose by over $2.0, with Brent topping $111 a barrel and rebounding from three-week lows a day earlier as escalating violence in the Middle East renewed fears about oil supply in the region. After an earlier crackdown on protesters in Bahrain resulted in at least four deaths according to hospital sources, violent clashes erupted in Yemen and Syria.
Iran chimed in with President Mahmoud Ahmadinejad quoted by state television condemning Bahrain’s crackdown on mainly Shi’ite protesters as unjustifiable. “Saudi is not happy about what is going on in Bahrain… The situation in Bahrain is potentially destabilising for Saudi Arabia,” said David Morrison, a strategist at GFT. Brent for April was up $1.61 at $110.13 a barrel, rebounding from its sharpest tumble in 13 months to a near three-week low of $107.35.
US crude futures were up $1.17 at $98.35 a barrel around the same time. Saudi intervention in Bahrain has been taken as a mark of concern that Bahraini protests could inspire Saudi Arabia’s own Shi’ite minority. The island state lies less than 100 kilometres from the hub of the Saudi oil industry around Dhahran, including the world’s largest oil fields, terminals and processing facilities.
Saudi protests have mostly taken place in the Eastern Province, where the oil industry is based. Muammar Gaddafi’s advance in Libya added to uncertainty, as traders speculated whether the West would take measures resulting in prolonged loss of Libyan oil supplies. “The question is, if the government is regaining power what should the West do – that is putting some geopolitical risk back in,” said Rob Montefusco, an oil trader at Sucden Financial.
Oil prices have yet to benefit from an expected increase in Japanese demand for gasoil and fuel oil for power generation to replace some of the nuclear capacity lost following Friday’s earthquake and tsunami. Reconstruction efforts and the increased need for non-nuclear fuel is forecast to boost Japanese oil burning by around 500,000 barrels per day, a report published by the JBC Energy Research Centre showed.
But oil shipments to Japan so far have not been significantly affected, a top shipping industry group said. “It remains unclear whether the earthquake in Japan will ultimately result in an increase or decrease in oil demand,” said Christopher Bellew, an oil trader at Bache Commodities in London. US crude oil futures were supported by a smaller-than-expected 91,000 barrel stock at the Cushing storage hub, data released by the American Petroleum Institute (API) showed late on Tuesday.
Analysts had on average expected a 1.8-million-barrel build. “The weekly API oil inventories report was fairly bullish after showing a small build in crude oil stocks and a strong rebound in the US refinery utilisation,” according to a report by Sucden Financial Research. A US Energy Information Administration report on Wednesday is forecast to show higher crude inventories on increased imports, while gasoline stocks are expected to fall 1.8 million barrels.
Distillate supplies, which include heating oil and diesel, are expected to have dropped 1.3 million barrels according to the poll.
