Libyan turmoil pushes oil price higher

2011-02-21 12:07

London - The price of Brent crude surged to a fresh two-and-a-half year high as investors were spooked by growing violence in major oil producer Libya.

Global stocks were slightly higher, with emerging markets down and European shares flat. US markets were closed for a national holiday.

Protests broke out in the Libyan capital Tripoli for the first time following days of unrest in the city of Benghazi. Some army units defected to the opposition, in what has become one of the bloodiest revolts to convulse the Arab world.

Financial markets are particularly sensitive to the violence in Libya because it exports about 1.1 million barrels per day of crude.

On Monday Brent oil was up $1.90 a barrel at $104.44, having earlier risen to a new high of $104.60.

"There is uncertainty about supplies. Markets don't like uncertainty," said Bernard McAlinden, an investment strategist at NCB Stockbrokers.

Meanwhile, rising oil prices feed into inflation, one of the main current concerns of investors who are in a generally bullish mood on expectations that global economic recovery is now sustainable.

One result was to weaken equities. MSCI's emerging market benchmark was down 0.1% on the day.

The FTSEurofirst 300 was flat, off its opening lows after eurozone manufacturing data came in above consensus. Ifo sentiment data out of Germany was also above forecast.

European stocks, however, have been hit by mixed earnings. Thomson Reuters Proprietary Research reported on Monday that the number of European companies missing fourth-quarter expectations is outpacing those beating them.

The earnings growth rate, actual and predicted, for the STOXX 600 is 18.9%, compared with a December estimate of 36.1%.

Brewer Carlsberg, for example, fell on Monday after posting a surprise fall in fourth-quarter operating profit.

Strong euro

The euro was firm, having hit its highest level in more than 10 days against a background of hawkish comments from European Central Bank (ECB) officials. These added to expectations that a rise in interest rates is on the way this year.

The common currency was trading at $1.3705, up 0.1% on the day. It rose to $1.3727 earlier in the session, the highest since February 10, extending a rise on Friday that was also related to comments from an ECB executive board member.

With an upcoming Irish election on Friday likely to see a party which is openly calling for a renegotiation of its EU bailout agreement come to power, strategists say there is a risk that the euro could come under pressure.

Eurozone policymakers are also struggling towards a more comprehensive package they hope can put an end to debt troubles.

"With neither the core nor the periphery signalling willingness to find a compromise on the issues for now, the chances are that potential political impasses could erode euro sentiment going forward," said Valentin Marinov, strategist at Citi FX.

Core eurozone bond yields were lower as investors sought caution in the face of events in the Middle East and North Africa.