Oil up above $112 as Middle East supply concerns dominate

Brent crude rose above $112 a barrel on Tuesday as continued unrest in the Middle East and North Africa threatened to further reduce crude supplies even as Saudi Arabia ramped up output to cover disruption to Libyan exports.



Gains were capped as February manufacturing growth in No. 2 oil importer China slowed to a six-month low. In top consumer the U.S., crude oil inventories likely increased for the seventh consecutive week last week on higher imports.
Brent futures for April rose 41 cents to $112.21 a barrel by 0736 GMT. The contract gained over 10 percent in February, its biggest monthly percentage rise since May 2009. U.S. crude rose 33 cents to $97.30 a barrel.
Both benchmarks surged to their highest in 2- years last week as the revolt in Libya cut supply and spurred fears that tensions could spread to other oil producers in the region.
Demonstrators blocked roads into Oman's main oil product port on Monday, although exports were unaffected.
"There's a very large fear premium in oil prices due to the geopolitical situation," said Ben Le Brun, markets analyst at CMC Markets.
"The potential is there and the risk is very high if it (the unrest) spreads to countries such as Saudi Arabia," he said, adding that in that scenario prices could "rocket up."
Crude oil shipments from Libya are at a virtual standstill as reduced output and bad weather hamper exports from the world's 12th-largest producer, shipping sources said.
Bank of America Merrill Lynch said Libya's oil infrastructure on the eastern side of the country could be prone to attacks, "creating the risk of a prolonged output loss.
The bank added that the oil market's ability to deal with further unrest in the Middle East was limited. Still, a Saudi source said on Monday that the kingdom has another 3.5 million barrels per day (bpd) of spare capacity, even after it raised output to around 9 million bpd to plug the gap left by Libya.
OIL SPIKES TO HIT GROWTH
The IMF has warned that global economic growth could suffer if the price of oil stays at its current high level for an extended period.
"A steep rise in oil prices that is caused by a supply loss is likely to be more damaging than one that is driven by robust demand," JPMorgan analysts led by Lawrence Eagles said in a February 28 note.
In China, manufacturing growth slowed in February to a six-month low, according to an official survey, as the government's sustained campaign to tame inflation weighed on industrial activity.
A slowdown was expected, but China still has strong demand for crude and products to feed its expansion, said Yuichiro Sakaki, a Tokyo-based trader at Mizuho Securities.


Name - Rakesh prasad
PGDM - 2 nd sem