• Courage to do right

    A number of factors will impede Zuma’s opportunity to have a ‘Lula moment’, says Prof Dirk Kotze.

  • #Budget2016

    Possible steps that can be taken in the National Budget to avert a junk status.

  • No ordinary SONA

    A weak president presiding over a racially polarised nation faces a serious task.

All data is delayed
See More

Oil prices slip as Saudi reassures supply

Feb 28 2011 17:25

London - Oil prices fell in choppy trade on Monday as reassurances from Saudi Arabia that extra supply needs could be met were tempered by Bank of America Merrill Lynch warning that Libyan output could be reduced for months.

International Energy Agency chief economist Fatih Birol told Reuters Insider TV industry reports indicated around half of Libya's production of 1.6 million barrels per day (bpd) had been cut, although other estimates had put the figure at three-quarters.

Brent futures for April were 2 cents lower at $112.12 a barrel by 1406 GMT. U.S. crude was down 40 cents at $97.48 a barrel. Both benchmarks posted their highest weekly close in two-and-a-half years last week.

Thorbjørn Bak Jensen of Global Risk Management said the situation in the Middle East and North Africa remained on a knife-edge and the outlook for prices was extremely unclear.

"If Saudi Arabia starts to rumble $120 per barrel is cheap. If not, and (Muammar) Gaddafi leaves and peace and quiet spread in the involved countries, $120 is expensive," he said.

The worst-case scenario is that conflict spreads to Saudi Arabia, OPEC's biggest oil producer and the only member with significant spare capacity that can be tapped quickly to deal with supply outages.

Saudi Aramco CEO Khalid al-Falih told reporters on Monday the extra supply needs caused by violent unrest in Libya had been made up.

Falih declined to give exact figures, but an industry source on Friday said the top exporter's output had risen to more than 9 million barrels per day (bpd). This compared with roughly 8.3 million bpd in January, according to a Reuters survey.

Spike and crash scenario

US bank BoA Merrill Lynch said in a note to clients seen by Reuters that unrest in Libya could make oil supplies from the North African producer unavailable to the market for months and increase the risk of demand destruction.

"The combination of a substantial run-up in demand coupled with a very severe supply shock makes a spike and crash scenario increasingly likely for global oil prices and the world economy," it said.

"In our opinion, if Brent crude oil prices hold at around $110-$115 per barrel in 2011, energy as a percentage of GDP would remain close to record levels, suggesting that the point of demand destruction is in short sight."

Saudi Arabia's reassurances came as regional protests spread to oil-producer Oman, causing both benchmarks to jump more than a dollar higher on the day in early trade, although the Gulf state's oil flow has not been affected.

Omani oil is equivalent to about 1% of global oil consumption, and any disruption could be expected to have an impact on oil prices.

Protesters blocked roads into the industrial area of Oman's refined product export port Sohar on Monday. Product shipments continued unhindered, a port spokeswoman said.

Oman produces around 850 000 bpd and its crude forms part of benchmark used to price more than 10 million bpd of crude shipped from the Middle East to Asia.

saudi arabia  |  libya  |  commodities  |  oil



Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

We're talking about:


Marketing is a big concern in SA's small business community, followed by a lack of confidence and partnering with the wrong people, according to a survey.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

Will Jacob Zuma's State of the Nation speech help SA avoid "junk" downgrade?

Previous results · Suggest a vote