Oil hit the best price in 2 years

Crude-oil futures ended moderately higher Friday, as investors remained concerned about unrest in Libya and other Middle Eastern and North African countries, but gains were limited by assurances that other oil-producing nations could make up for production losses.

Light, sweet Crude for April delivery (CLJ11 98.23, +0.60, +0.61%) added 60 cents, or 0.6%, to settle at $97.88 a barrel on the New York Mercantile Exchange.

Never mind the relatively lackluster Friday: oil gained 14% this week, its biggest weekly percentage increase since January, 2009. Oil has settled higher in six out of the last seven sessions.

The week included a rollover from the March contract to the April contract. Weekly gains in terms of the April contract reached 9.1%.

Concerns about supplies in Libya due to the country’s unrest and fears of contagion to other Middle Eastern and North African nations roiled markets this week.

Other energy products such as gasoline posted fresh multi-year highs.

The front-month April Brent crude contract at London’s ICE also settled higher, up 78 cents, or 0.7%, to trade at $112.14 a barrel.

Some renewed buying interest in oil as well as other commodities such as gold came later in the session, as some traders positioned ahead of the weekend, trying to avoid staying out of the market ahead of the weekend –- with its potential for more unrest and laden with uncertainties.

Oil traded slightly lower for most of the session.

“We seemed to have wakened up to a calmer atmosphere in the market,” said Matt Smith, an analyst with Summit Energy in Kentucky.

While Libya’s production is compromised, traders have taken “comfort” from statements by the Saudis and organizations such as the International Energy Agency about spare capacity and use of emergency stockpiles, he added.

The market “appears to be taking the loss of most Libyan barrels as a given but does not expect further problems,” JBC Energy analysts said in a note to clients Friday.

Other analysts have cautioned, however, that Saudi Arabia’s heavier, sour crude oil — more costly and time-consuming to refine — is not a perfect substitute for Libya’s lighter, sweeter product.

“Complex refineries with ample coking and sulfur recovery capacity will fare better in this environment than those geared to running the higher-grade feed. However, from a global fuel supply perspective, we think there is plenty of spare refining capacity right now to convert additional sour barrels into products,” Tim Evans, an analyst with Citigroup’s Citi Futures Perspective wrote in a note to clients earlier this week.

Crude futures surged in recent sessions to levels not seen since the second half of 2008, breaching the key $100-a-barrel level, but ended on a weaker note Thursday.

“There is still a lot of nervousness in the market, but it’s not as elevated as yesterday,” said Arne Lohmann Rasmussen, a commodity analyst at Danske Bank in Copenhagen.

Futures on other energy products traded higher on Friday, with natural gas the star of the day on the back of gains of 3.4%.

Natural gas for April delivery (NGJ11 4.02, +0.13, +3.42%) , the new front-month contract, added 13 cents to $4 per million British thermal units.

That was natural gas’s highest settlement since Feb. 9. On the week, the fuel rose 3.2%.

Gasoline for March delivery (RBH11 2.74, +0.03, +1.26%) advanced 2 cents, or 0.8%, to $2.74 a gallon. That was gasoline’s highest finish since Sept. 12, 2008.

Gasoline gained 7.5% this week, the biggest weekly gain since December.

March heating oil (HOH11 2.94, +0.05, +1.86%) advanced 5 cents, or 1.9%, to $2.93 a gallon, putting weekly gains for heating oil at 8%, the largest weekly advance since October, 2009.

The settlement was heating oil’s highest since Sept. 26, 2008.
Coping mechanism

Libya’s crude exports have come to a virtual halt because of reduced production and a lack of workers at ports, as well as on security concerns, Reuters reported on Friday. Reuters also reported the Saudis had already increased their oil production by 8% to make up for Libya’s virtual halt.

In a statement released Thursday, the Paris-based International Energy Agency said it was in close contact with the Organization of the Petroleum Exporting Countries cartel and major producer countries.

The IEA also said that it is “always ready to immediately activate” its existing response mechanism if needed and that IEA members collectively have 1.6 billion barrels of emergency oil stocks at their disposal.

Danske Bank’s Rasmussen pegged the risk premium currently seen in oil prices at $15 to $20 a barrel and said it’s unlikely to be eroded any time soon, pointing to fears that unrest could spread even if the Libyan situation is resolved and oil production resumes.

“The world is a bit different than it was a month ago,” he said.

Along these lines, Saudi Arabia announced a $36 billion package of new programs and benefits for its citizens Thursday and Algeria officially lifted political restrictions imposed in 1992.

Saudi leaders’ decision to commit to spending on housing, education and social welfare will “buy the government some more breathing space,” said economists at Capital Economics.

In any event, “most of Saudi Arabia’s population is conservative and appears to favor political and economic stability rather more than reform,” they added.

For Algeria, the country’s experience of civil war in the 1990s “makes people there even more wary of a descent into the chaos now seen in neighboring Libya,” Capital Economics told clients.

By Claudia Assis and William L. Watts, MarketWatch
Claudia Assis is a San Francisco-based reporter for MarketWatch. William L. Watts is a reporter for MarketWatch in London. Sarah Turner in Sydney contributed to this report.

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