Crude oil climbed for a second day in New York on reports that Saudi Arabia, holder of the world’s largest oil reserves, reduced output this month.
Futures rose 0.9 percent after John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi, said the desert kingdom cut production by 300,000 barrels a day. Barclays Plc said Saudi Arabia may be reducing production of its lighter oil blends introduced in response to the slump in Libyan output.
“The news that the Saudis are cutting output should be scaring the daylights out of people,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “It looks like they couldn’t find buyers for their light blends.”
Crude oil for May delivery increased $1 to settle at $108.11 a barrel on the New York Mercantile Exchange. Prices are up 26 percent from a year ago.
Brent oil for May settlement slipped 52 cents, or 0.4 percent, to end the session at $122.36 a barrel on the London- based ICE Futures Europe exchange. The more actively traded June contract declined 33 cents, or 0.3 percent, to $122.
Saudi Arabia, the biggest oil producer in the Organization of Petroleum Exporting Countries, pumped 9 million barrels of crude a day in March, the highest level since October 2008, according to data compiled by Bloomberg News.
Libyan Oil Shortfall
Falling Libyan crude production bolstered prices for comparable low-density, low-sulfur grades. Saudi Arabia developed two blends to offset the Libyan shortfall.
Nigeria’s Bonny Light crude, a grade with similar properties to the missing Libyan barrels, has surged 30 percent this year and touched $130.13 on April 8, the highest level since July 22, 2008. The grade slipped 8 cents to $125.60 a barrel at 3:09 p.m., according to data compiled by Bloomberg.
“If Saudi Arabia is cutting back on anything, they’ve cut back on those blends,” said Amrita Sen, a commodities analyst at Barclays in London.
Prices have advanced 18 percent this year as unrest spread from Tunisia to Egypt, Libya, Yemen, Bahrain and Syria. Libya has been effectively split in two since the early stages of the two-month conflict that has halted the country’s oil exports.
“There’s very little downside risk in the market given the geopolitical situation in the Middle East,” said David Kirsch, an analyst with PFC Energy in Washington. “There are structural problems in the region that can’t be solved in the near term.”
Libyan Air Campaign
The North Atlantic Treaty Organization’s chief said the alliance needs more attack jets to target Libyan ground forces, putting pressure on the U.S. military to step back into the air campaign against Muammar Qaddafi’s troops.
“We need a few more precision-fighter ground-attack aircraft for air-to-ground missions,” NATO Secretary General Anders Fogh Rasmussen said today at a meeting of the group’s 28 foreign ministers and leaders from other allied nations in Berlin. The call for more alliance warplanes comes 10 days after the U.S. largely withdrew its ground attack planes from Libya.
Elections in Nigeria this month may lead to decreased output from Africa’s top crude-producing country. Attacks by armed groups in the Niger delta region, home to Nigeria’s oil and gas industry, cut more than 28 percent of the country’s oil output between 2006 and 2009, according to data compiled by Bloomberg News.
“The geopolitical situation is getting worse,” said Ray Carbone, president of Paramount Options Inc., a broker on the New York Mercantile Exchange. “The Saudis cut production, there’s problems in Nigeria and sweet crude is diminishing.”
U.S. Economic Data
Oil also increased after the dollar dropped as U.S. initial jobless claims rose and producer prices advanced at a slower pace, signaling the Federal Reserve will keep borrowing costs low. A falling U.S. currency increases the appeal of raw materials priced in dollars. The greenback dropped as much as 0.5 percent to $1.4515 per euro.
“Oil rose as soon as the dollar dropped,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “Today’s economic data makes it less likely that the Fed will raise rates, which is weakening the dollar.”
Oil volume in electronic trading on the Nymex was 701,989 contracts as of 3:13 p.m. in New York. Volume totaled 1.03 million contracts yesterday, 29 percent above the average of the past three months. Open interest was 1.59 million contracts the most since March 14.
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