LONDON: Oil prices fell on Tuesday but held near 2-1/2 year highs, with Brent remaining close to $121 a barrel on unrest in oil exporting countries in the Middle East and Africa.
A Western air strike destroyed two of Muammar Gaddafi’s military vehicles in the east Libyan oil town of Brega on Tuesday allowing rebels to edge forward, but diplomatic efforts to end the war remained stalled.
The stalemate fuelled fears of a prolonged loss of oil exports from Libya despite reports that a first cargo of crude oil is due to be loaded by rebels on Tuesday.
Brent crude for May fell 70 cents to $120.36 a barrel at 1130 GMT, after closing at $121.06 a barrel on Monday, the highest settlement since Aug. 1, 2008.
US crude fell 69 cents to $107.82 a barrel after settling at $107.78 on Monday, the highest since Sept. 22, 2008.
"It’s looking overbought and we might see a bit of a correction now, but now that Brent has broken above $120 it’s hard to put a top on it," said Rob Montefusco, an oil trader at
The fourth Chinese interest rate hike since October briefly triggered a decline of around $1 a barrel in oil prices, but markets pared the bulk of losses on reports of further clashes
in West Africa on Tuesday.
"The market doesn’t seem that bothered about Chinese interests rates any more, which seems totally crazy to me," said David Morrison, a strategist at GFT.
The perception of tight fundamentals has helped trigger price gains on relatively small output interruptions, which have been compounded by the erosion of spare capacity from top exporter Saudi Arabia, analysts said.
The kingdom has raised supply and introduced lighter grades of oil to help fill in for missing Libyan output, but traders question how much more room for output increases remains.
Worries about oil supply also focused on Nigeria after elections there were postponed by a week due to logistical problems, sparking fury among voters who were promised a break with a history of flawed and violent polls.
"We have already lost good grades in Libya, and now the elections in Nigeria are providing further potential upside," continued Montefusco.
"OPEC may be called on to increase production, but the question is, how much spare capacity have they really got?"
Nigeria has a history of contentious elections and militants there have previously hit oil supplies, a sweet crude that has jumped to a premium as a result of the Libyan outages.
However, production was restarting in Gabon, which produces a similar grade of oil, after energy worker strikes completely cut off the country’s near 240,000 bpd of output. Total and Shell, key producers in Gabon, both said they were working to restore normal production as soon as possible.
"Anything that affects Brent or Africa is going to be important, especially under the current situation in Libya," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.
Delayed loading of several cargoes of Forties crude — which typically sets the level of the dated Brent benchmark — will add to supply pressure.
The discount of US crude futures to Brent widened to $12.64 at 0938 GMT, gaining close to $2 a barrel since the start of trade this week, but remained distant from a record $17.12 a barrel spread at the start of March.
Former Saudi oil minister Sheikh Zaki Yamani told Reuters the US would continue to be dependent on exports from Saudi Arabia despite plans to cut oil imports by a third over the next decade announced by US President Barack Obama last week.
He said oil prices could leap to $200 to $300 a barrel if Saudi Arabia is hit by serious political unrest.
Weekly industry and government petroleum inventory reports are forecast to show a 1.4 million build in US crude inventories, a 1.9 million barrel decline in gasoline stockpiles and a 200,000 barrel drop in distillates, according to a Reuters poll of analysts. –Additional reporting by Seng Li Peng and Simon Webb in Singapore