CERAWEEK-OPEC preaches calm, but oil market frets

Thu Mar 10, 2011 1:15pm EST

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* Impact of Mideast unrest could linger for a decade

* OPEC ministers and producers say no physical shortage

By Edward McAllister

HOUSTON, March 10 (Reuters) - Though OPEC officials have done their best to quell fears about Middle East oil supply disruptions, experts warn that Libyan unrest could signal a new period of prolonged oil market jitters.

"There is no panic," Algeria's oil minister Youcef Yousfi said at the high-profile CERA Week conference in Houston this week, attributing the stellar rise in oil prices to speculators and market psychology.

Oil executives from Total SA (TOTF.PA), Hess Corp (HES.N) and BP Plc (BP.L) joined the chorus, saying there is no pressing shortage of physical oil supplies.

But not everyone has remained as composed as OPEC ministers amid the highest oil prices in over two years.

The legacy of Mideast unrest will linger in the market for years, making it difficult to keep a ceiling on crude prices, conference speakers said.

"This is a new risk that will be in the marketplace for the next ten years," said Ed Morse, the arriving head of commodities research at CitiGroup (C.N).

Civil unrest in North Africa and the Middle East - which spread from Tunisia to Egypt, Bahrain, Yemen and Saudi Arabia - has pushed oil prices in London and New York way above $100 a barrel in recent weeks. On Wednesday, Brent crude in London settled above $115 a barrel.

Fighting in Libya has cut oil output to half a million barrels per day from the more than 1.5 million bpd of production before widespread protests broke out last month against long standing Libyan leader Muammar Gaddafi [ID:nLDE7282LJ]. Cuts in Libyan production have forced top producer Saudi Arabia to increase output.

Physical supply of Libyan sweet crude - for which there is little spare capacity in the world - will struggle to come back online quickly, Morse said.

"It is an illusion to think that Libyan crude production will be anything near 1.5 million barrels a day a year from now," he added, citing technical issues that often arise after disruptions to crude supply.

Buyers like India and China, concerned about supply disruptions, could begin stockpiling crude despite higher prices, Morse said.

BP's (BP.L) head of strategy and policy, Ian Smale, said that trying to predict a cap on crude oil prices in the current environment is very difficult, especially as demand continues to rise.

"The mechanisms for providing a floor to oil prices are absolutely in place. The mechanisms for providing a ceiling to oil prices are a lot more difficult to see," Smale said, adding that the role of OPEC in shaping the supply outlook will likely increase with demand in the years to come. (Editing by Chris Baltimore and Marguerita Choy)

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