Oil near two and a half year peak amid Middle East turmoil


LONDON – Oil prices stayed near a two and a half year peak supported by widespread unrest in the Middle East and North Africa and dollar weakness ahead of Europe’s central bank rate decision on Thursday.
Brent crude traded above $122 a barrel with US crude at $108.5 a barrel and broadly flat. The European central bank is expected to raise interest rates by 0.25 percent on Thursday in the first hike since the 2008 financial crisis. The expectations have propelled the euro to a 14-month high while the dollar index was down 0.37 percent at 0835 GMT. “Central bankers will always claim that they have no influence on oil prices but recent history has repetitively shown that in the new world where commodities are a global asset, central bankers can have a greater influence on oil prices than OPEC,” said Olivier Jakob from Petromatrix.
The rally in the euro took place even though Moody’s rating agency downgraded several Portuguese banks. Analysts noted that a wide return of risk appetite amid expectations of strong recovery in the United States has outweighted yet another increase in China’s interest rates on Tuesday, the fourth since October, to tame inflation.
“China is supposed to be leading the commodity complex but an increase of Chinese rates is not anymore a trading input for more than a few minutes,” said Jakob. Singapore-based Serene Lim of ANZ said the impact from the hike would be mitigated by the turmoil in Libya.
“It is a stalemate in Libya and this will give support to oil prices, which are trading at a very tight range,” she said. In Bahrain, firms have fired hundreds of mostly Shi’ite Muslim workers who went on strike to support pro-democracy protesters, an opposition group said on Tuesday, in what appeared to be part of a government crackdown.
A forecasts for a rise in U.S. stockpiles in government data due out later on Wednesday could dampen sentiment after Brent’s four-day, 6-percent rally. Technical analysis showed Brent could rise above $126, said Reuters analyst Wang Tao. “Technically, it is possible for Brent to go to $125 a barrel within this week,” said Ken Hasegawa, commodity derivatives manager at Japan’s Newedge brokerage. Brent’s rally to above $120 a barrel could soon fizzle out, according to a majority of traders and analysts in a Reuters poll released on Wednesday. But they expected Brent to roar back above $130 in the second half of this year.