Brent crude tops $103 as Egypt violence escalates
SINGAPORE (Reuters) - Brent crude rose past $103 on Thursday after violent clashes in Egypt raised fears of supply disruptions and unrest across the Middle East, overshadowing the bearish effect of soaring gasoline inventories in top consumer the United States.
ICE Brent crude for March rose as much as $1.03 to $103.37 a barrel, the highest intraday price since Sept. 26, 2008, and was up 85 cents at $103.19 at 0725 GMT. U.S. crude for March rose 54 cents to $91.40.
Front-month Brent has rallied more than $8 since the unrest in Egypt started from about $95 a barrel on Jan. 25. That 9 percent gain in slightly over a week is more than a third of last year's total increase of 22 percent.
"The chance of contagion to a country that is systemically important for oil markets still remains relatively low, but it's the combination of that possibility and the importance of oil flows from the Red Sea to the Mediterranean through the Suez Canal that is building a premium" into prices, said Ben Westmore, commodities economist at National Australia Bank.
Supporters of President Hosni Mubarak opened fire on Thursday on protesters camped out in Cairo's Tahrir Square, wounding at least seven, witnesses said.
The crisis has alarmed western governments who have regarded Mubarak as a bulwark of stability in the volatile region, and has raised the prospect of unrest spreading across the Middle East and North Africa, which combined produce more than a third of the world's oil supplies.
More than 20,000 people on Thursday filled the streets of Sanaa, the capital of oil-producing Yemen, for a "Day of Rage" rally, demanding a change in government and saying President Ali Abdullah Saleh's offer to step down in 2013 was not enough.
So far, the unrest in Egypt has not affected traffic on the Suez Canal or flows on the Suez-Mediterranean (SUMED) oil pipeline. Egypt controls both the canal and the pipeline, which together moved over 2 million barrels per day (bpd) of crude and oil products in 2009, the latest data available.
"Once the tensions there begin to moderate, then you will have the market focusing again on fundamentals. We still have this abundant supply, so there is definitely more downside than upside," Westmore added.
U.S. crude inventories rose 2.59 million barrels to 343.16 million barrels in the week to Jan. 28, the Energy Information Administration said on Wednesday, while stockpiles of gasoline surged by 6.15 million barrels to 236.23 million barrels, the highest level since 1993.
Inventories at the key Cushing, Oklahoma terminal rose 667,000 barrels to 38.33 million barrels, a record. Cushing in PADD 2 is the delivery point for the New York Mercantile Exchange's benchmark West Texas Intermediate crude futures.
The glut is depressing the price of WTI relative to Brent, with the front-month contract of the U.S. benchmark about $11.70 below the European marker. The spread last week ballooned to a near-record $12.50 a barrel.
A massive winter storm, meanwhile, brought parts of the U.S. Midwest to a standstill and delivered another wintry blow to the Northeast, the biggest market for heating oil.
The U.S. March heating oil contract settled 2.37 cents higher at $2.7807 a gallon, the highest for a front-month heating contract since October 2008. It extended gains on
Thursday to $2.7868 a gallon.
In other markets, Japanese stocks eased on Thursday as the escalating violence in Egypt prompted investors to move to safer assets, while commodities extended their recent gains, underscoring growing inflationary pressures that could threaten the global economic recovery.
The price of copper, a key industrial metal, hit a fresh record high Thursday on expectations of strong global demand.
Oil traders also awaited data on U.S. non-farm payrolls for January due on Friday as an indication for the state of the economy and energy demand.
U.S. hiring probably gathered steam in January, marking a fourth straight month of gains, but likely not enough to prevent the jobless rate from ticking up. Nonfarm payrolls are expected to have increased by 145,000 jobs, but severe snow storms that blanketed large parts of the country during the survey period could result in a much lower figure.
The Organization of the Petroleum Exporting Countries is likely to increase output by "more rather than less" in response to tensions in the Middle East, the chief economist of oil major BP told Reuters Insider Television on Wednesday.
(Editing by Kim Coghill)
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