| CHICAGO/NEW YORK
CHICAGO/NEW YORK Oil at $100 a barrel would dent U.S. economic growth, while the world's top economy would probably slide back into recession if Middle Eastern unrest pushed prices up to $150 for a sustained period, the manager of Pimco's largest commodity fund said on Thursday.
Mihir Worah, who manages the $25.7 billion Pacific Investment Management Co's Commodity Real Return Fund, said U.S. oil futures could remain in the $90 to $100 a barrel range if the unrest doesn't move beyond Libya to bigger oil exporters like Saudi Arabia or Iran.
U.S. crude oil surged to a 2-1/2 year high of $103.41 a barrel on Thursday after Libya saw its 1.6 million barrel per day crude output plunge as forces loyal to Muammar Gaddafi launched a fierce counter-attack on rebels.
"If the situation is contained to Libya and production is down there, then I think we will stay at the $90 to $100 level," Worah said in a phone interview.
"But even with oil at $100, we'll start to see U.S. growth slow down and see an impact on gasoline demand."
Oil at $100 this year would likely shave 1/2 percentage point from U.S. GDP growth, Worah said. That has led the Newport, California-based Pimco to revise U.S. growth expectations from pre-crisis expectations to a forecast of 2.5 to 3 percent growth.
For now, Pimco does not expect uprisings that have swept across North Africa since January to extend to OPEC's biggest producer.
"Our base case is that it will not spread to Saudi Arabia," he said, but given the concern, the recent price gains in oil are justified.
If turmoil affects oil output in the big Gulf producers, it could push oil prices high enough to derail a fragile U.S. economic recovery.
"If the situation spreads, and I don't know that it will, oil prices could go significantly higher and throw us back into recession."
He said that sustained oil prices in the $125 to $150 a barrel range would significantly threaten U.S. economic recovery.
As a bloody standoff intensifies in Libya, Saudi Arabia sought to calm markets on Thursday, telling European refiners it was ready to ship them more crude.
The Organization of the Petroleum Exporting Countries, led by Saudi Arabia, holds around 5 million barrels of spare production capacity and, at least in volume terms, could quickly make up for lost production from Libya, Worah said.
However, Saudi crude is heavier and more acidic than Libya's oil. Prolonged shut-ins in the North African country could cause differentials for light crude grades to rise significantly, since many refiners are configured to run lighter grades and prize it above others, Worah said.
PIMCO "LIGHTENING UP" IN CRUDE
As for Pimco's own positions, "we are reacting, analyzing, but obviously don't want to overreact. Early on into this, a few days ago, we were buyers, generally," Worah said.
"Here today (Thursday), as it is calmer, we are lightening up on some of the crude oil positions that we had. Nothing dramatic."
"It changes our outlook on the economy, on inflation, but we have not made any major changes in our positions," Worah said.
Oil's recent surge is the latest sign of tighter commodities supply across the globe, following spikes in grain prices last year, Worah said.
"The scenario just shows how stretched supplies are with the fast growing Asian economy," Worah said.
This week's sell-off in grains and metals, and the rally in the Swiss franc is a classic flight to quality trade, he said.
Speculators and hedge funds were extremely long in the grains, and were unwinding positions and getting flat, Worah said.
"It's all one trade, a flight to quality to get out of risky positions," he said.
(Reporting by Joshua Schneyer and Suzanne Cosgrove; Editing by Marguerita Choy)