Oil rises on supply concerns

FE Team | Published: March 02, 2011 00:00:00 | Updated: February 01, 2018 00:00:00

LONDON, Mar 1 (Reuters): Oil prices rose back above $112 a barrel Tuesday due to concerns over unrest in the Middle East, though stock markets shrugged off the move, preferring to focus on optimism over the outlook for the US economy. The upheaval in the Middle East and North Africa helped spot gold to rise about 0.3 per cent to $1,414.20 an ounce, aiming for its third straight day of gains. But European equities tracked gains on Wall Street overnight and in Asia, with analysts saying markets had turned back to hopes of a strong recovery in the United States and the prospect of monetary tightening there being delayed for some time. Data on Monday showed US consumer spending growth slowed in January but also painted a bullish picture of the manufacturing sector, with a gauge of factory activity in the country's Midwest hitting a 22-1/2 year high. "It's very important that the US economy is now showing signs of strength ... and forecasts for this year's GDP are starting to exceed 4 per cent," said Heino Ruland, strategist at Ruland Research in Frankfurt. "This is certainly good news for the world economy." Figures out of China, however, showed manufacturing growth slowed in February while costs jumped, suggesting monetary tightening was beginning to register but that more would probably be needed to cool inflation due largely to rising oil and food prices. US crude for delivery in April inched up 0.2 per cent to $97.24 per barrel. The pan-European FTSEurofirst 300 index was last up 0.8 per cent. The world equities measured by MSCI All-Country World Index added 0.5 per cent. Crude traded close to $120 per barrel last week, its highest in more than two years, due to concerns that political upheaval in Libya would spread across oil-producing nations in the Middle East. Saudi Arabia has calmed the market with extra supply. "I would expect that the rise in oil prices we've seen so far, which is more gentle compared to what we saw in the 1970s and '80s, the impact on the economy will be negative but maybe not as negative as we have seen in the past," said Elwin de Groot, market economist at RBC Capital Markets. "The rise comes against the backdrop of very strong profits in the past quarters, so we need to see bigger events before the market is significantly dented by that. Still, there is always a risk that this will have a bigger impact on the global economy if things worsen." The dollar index, which tracks its performance against a basket of major currencies, hit a 3-1/2 month low of 76.756, before recovering slightly to 76.827. The euro hovered close to its 2011 high of $1.3862 against the dollar and traders said a catalyst for more gains could come if Federal Reserve chief Ben Bernanke suggests in Tuesday testimony it will continue to run extremely loose monetary policy. Bernanke is expected to stay cautious about the economy in the semi-annual testimony before the Senate Banking Committee at 1500 GMT, in contrast with other central banks who are focused on rising inflation. "The euro could test or break its 2011 highs if Bernanke suggests Fed policy will continue to be extremely accommodative," said Roberto Mialich, currency strategist at Unicredit in Milan. Meanwhile, AP from Singapore adds: Oil prices rose above $97 a barrel Tuesday in Asia as the power struggle in Libya cut crude production and traders mulled whether political upheaval will spread to other oil-rich countries. Benchmark crude for April delivery was up 40 cents at $97.37 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract lost 91 cents to settle at $96.97 Monday. Libya's top oil official, Shukri Ghanem, said Monday that the country's crude production had been cut by around 50 per cent, or about 800,000 barrels a day. International pressure increased on Libyan leader Moammar Gadhafi to step down as his supporters and opponents fought in towns outside the capital, Tripoli. So far Libya has been the biggest oil producer to see exports disrupted by political uprisings this year that have toppled governments in Tunisia and Egypt and sparked violent protests in Yemen, Iran, Oman, Bahrain, Algeria and Morocco. Oil traders are most concerned the unrest could spread to Saudi Arabia, the world's largest crude exporter. Some analysts expect oil prices will drop once Gadhafi resigns or Libyan oil exports stabilize.