US crude at 2.5-year highs on Libya fears

LONDON: Both Brent and US crude oil rallied to 2.5-year highs on Tuesday on concerns the revolt in Libya could spread to other major oil producers in the Middle East and North Africa.

"It's like one of those Australian bushfires -- once it takes hold, it's very difficult to put out," said Michael Hewson, an analyst at CMC Markets.

"Until the situation in the Middle East settles down, you are going to have very wild price swings." At 1142 GMT, Brent crude oil futures for April delivery were up $1.36 to $107.10, after earlier touching $108.57. US crude for April delivery was up $6.82 at $96.53 as investors and traders became increasingly nervous about contagion.

The jump in US crude is partly explained by the fact that electronic trading of the contract occurred on Monday, but there was no settlement close as the exchange in New York was closed for a holiday.

Libya produces around 1.6 million barrels of oil per day, and OPEC has spare capacity of up to 6 million barrels, so even if all exports were stopped this would not create a supply shortage, said Carsten Fritsch, an analyst at Commerzbank.

"It is more fears that this might spread to places like Algeria, Kuwait or the United Arab Emirates," he said.   Libya is the third-largest oil producer in Africa, and at least 100,000 barrels per day -- about 6 percent of the country's production -- have been shut in. At 44 billion barrels, Libya has Africa's largest proven oil reserves, according to the US Energy Information Administration.   Trading sources reported that operations at Libya's ports had been disrupted by a lack of communication.

"The assumption is that the ports are either already closed or are closing," said a trader with a company that buys Libyan oil. Fighting has spread to the capital Tripoli. Amid reports that African mercenaries are being used to crack down on protesters some army troops have switched sides to the opposition.

European oil and gas firms such as Shell have evacuated staff and German company Wintershall has wound down production as a precautionary measure.

The Arab League plans to hold an emergency meeting in Cairo at 1500 GMT to discuss the Libyan revolt. World leaders have condemned the use of force against protesters in Libya, where at least 233 have been killed, according to Human Rights Watch.

Cracks are now appearing among Gaddafi's supporters, with some ambassadors resigning and the Libyan mission to the United Nations calling on the army to "move towards Tripoli and cut the snake's head". US crude for March delivery , which expires on Tuesday, was up $7.22 at $93.42 after also earlier touching a 2.5-year high at $94.49.   Hewson thought US crude could rally further when New York opens this afternoon. "Brent has broken above a key level at $105, so the bias will remain to the upside while Libya is in flames," he said.

He pointed out that there were also tensions in Bahrain which are raising fears the unrest could spill over the border into Saudi Arabia. "Never assume anything in this business," he said. "While at the moment Saudi Arabia is quiet, there is a worry it could spread."   SUPPLY DISRUPTION   A wave of protests across North Africa has had little impact on oil supply until now. The outages in Libya this week are the first to impact supply.