Oil falls from near $120 on Saudi, Gaddafi rumor

NEW YORK Thu Feb 24, 2011 6:55pm EST

Traders work in the oil options pit on the floor of the New York Mercantile Exchange in New York City, February 22, 2011. REUTERS/Brendan McDermid

Traders work in the oil options pit on the floor of the New York Mercantile Exchange in New York City, February 22, 2011.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Oil sank from 2-1/2-year highs near $120 a barrel on Thursday in strong, late-day profit-taking following an unsubstantiated rumor Muammar Gaddafi had been shot and Saudi Arabia's assurances it can counter Libyan supply disruptions.

A U.S. official said Washington had no reason to believe the Libyan leader was dead after the rumor swept through oil markets and sent prices tumbling more than $2 a barrel just before settlement.

Prices surged in early activity on news the Libyan revolt had caused large disruptions in the OPEC nation's oil supplies -- potentially up to three-quarters of output -- though the scale of the loss could not be confirmed.

Markets had earlier eased on news top OPEC exporter Saudi Arabia was in talks with European refiners affected by the disruption to fill any supply gaps.

"After three days of moving to the upside, the market was prone to profit-taking and then we heard the rumor that Gaddafi was dead," said Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut.

"It was almost like the fever was breaking anyway, and this was the bucket of water that brought the temperature down quickly."

Traders said an increase in margin requirements for U.S. crude oil futures on the New York Mercantile Exchange and the Intercontinental Exchange in London also added pressure to prices late in the day.

Brent crude hit $119.79 a barrel -- the highest since August 2008 -- in early activity then dropped to $110.51 late, marking the widest trading range for the benchmark since September 2008. Brent settled up 11 cents at $111.36 a barrel, dropping more than $1 in post-settlement activity.

U.S. crude settled down 82 cents at $97.28 a barrel, after touching $103.41, the highest since September 2008.

Brent's performance pushed its premium to U.S. oil, which has been weighed down by large stocks at the Cushing, Oklahoma delivery point for the New York Mercantile Exchange's U.S. oil contract, out more than a dollar to over $14 a barrel.

As concerns mounted about the impact of higher oil prices on economic growth, the International Energy Agency again called on OPEC to draw on excess oil production capacity if required to counter Libyan supply losses.

The IEA estimates the unrest has cut off 500,000 to 750,000 barrels per day (bpd) of Libyan output. Italian oil company ENI, the biggest foreign operator, estimated 1.2 million bpd of the country's 1.6 million bpd had been shut down as international firms pull out workers.

Options trade volumes for the New York Mercantile Exchange's U.S. oil contract hit a record on Wednesday as the unrest sent prices higher, with traders saying bets were being laid for a spike to $120 a barrel by April.

While traders focused on Libya, some support also came after U.S. Energy Information Administration data showed a lower-than-expected build in domestic crude inventories and hefty drawdowns in gasoline and distillate stocks last week.

(Reporting by Matthew Robinson, Gene Ramos, Selam Gebrekidan, David Sheppard, Janet McGurty, Jeffrey Kerr in New York; Christopher Johnson, Nia Williams, Emma Farge, Claire Milhench and Dmitry Zhdannikov in London; Editing by Dale Hudson)

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Comments (24)
I moved c;loser to work the last time prices got out of hand, along with many other people whgo refuse to be enslaved by their mode of transportation. I feel bad for those who will suffer at the cost of travel, but this kind of stuff is too commonly associated with fuel and necessities, yet our gov makes no planning to offset these emergencies. Park it if you don’t need to drive it, and walk when you can.

Feb 23, 2011 9:17pm EST  --  Report as abuse
SB63 wrote:
Hmmm…let’s see here: There are countries that have oil but lack water/food, countries that have water/food yet need oil….International trade deals going on with no consideration for the people that truly make it all come together. Oh, and I’ll add…everywhere on the planet…from the 1st to 3rd worlds have people dying because they have no food…no clean water yet they support and live in the shadows of the “elite” because they are forced into a system of “caste” or “do or die”. Humanity has awakened…equality has no “classes”…do not for a minute think this revolution will not touch every government and country on the planet. Just consider these regimes that have been put in place and supported for decades by the UN and world govenments…even allowed be members of peace and security levels

~Small rant/part one, over….let the trolling begin!!

Feb 23, 2011 9:28pm EST  --  Report as abuse
jaybird25 wrote:
It would have been wise to include that the US gets NO oil from Libya, Libya oil is exported to Europe.

Feb 24, 2011 2:21am EST  --  Report as abuse
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