December 8, 2023

Oil Prices Surge Again on Fighting in Libya

Oil prices surged again Friday amid reports that the fighting in Libya damaged the country’s oil fields and on a weaker dollar that has made commodities cheaper for investors with other currencies. Equity markets on Wall Street moved with a narrow range on Friday as investors watched for news from Washington about a possible government shutdown.

The price of benchmark crude for May delivery was up $1.02 at $111.32 a barrel, the highest since September 2008, in early trading in New York. The contract rose $1.47 on Thursday to settle at $110.30.

In London, Brent crude for May delivery was up $2.05 to $124.72 a barrel.

The large spread between the two prices has been attributed to the belief that Europe has a higher exposure to the scarcity of Libyan oil exports, and the big American stockpiles of crude and gasoline.

Crude output in Libya slowed to a trickle this week as forces loyal to Col. Muammar el-Qaddafi attacked the country’s largest oil field in the rebel-controlled east, rebels said. Most of Libya’s 1.6 million barrels a day of crude production had already been shut down by nearly two months of fighting.

“The biggest driver of the further increase in oil prices is a growing perception in the market that the conflict in Libya might not end anytime soon,” a report from KBC Energy Economics in Britain said.

Oil prices were also lifted by a weakening dollar, which makes dollar-based commodities like crude oil cheaper for traders with other currencies. The euro rose to $1.4433 on Friday from $1.4306 late Thursday.

Analysts, meanwhile, noted demand could drop as oil prices climb above what many consumers can afford.

Wall Street indexes struggled Friday with investors looking to watching Washington, where Republicans and Democrats are in the final day of talks to reach a budget agreement that would prevent a government shutdown. A shutdown will close non-essential government services, including the publication of most economic reports.

In early trading, the Dow Jones industrial average were down 5.29 points. The Standard and Poor’s 500-stock index was flat, while the Nasdaq 100 lost 3.65, or 0.13 percent.

In economic news, the Commerce Department reported that wholesale businesses increased inventories in February for the 14th consecutive month but sold fewer cars, pieces of furniture and petroleum products.

Sales at the wholesale level slipped 0.8 percent in February, the agency said, the first setback since June 2009. Inventories rose 1 percent and have been rising for more than a year. The string of inventory gains pushed them to $438 billion, up 13.4 percent from the low reached in September 2009.

Equity markets in Europe and Asia were higher, led by Nikkei 225 index in Japan, which rose up 1.9 percent at 9,768.08 — its highest closing since the quake. More than 900,000 households in Japan remained without electricity on Friday after the strongest aftershock since the March 11 earthquake and tsunami rocked a wide section of the country’s northeast. But there no reports of fresh damage at the stricken Fukushima Daiichi nuclear power complex.

“After a weak close on Thursday, following another earthquake in Japan, stocks have bounced back strongly as it became clear this was not as bad as first feared,” the head of research at IG Index, Anthony Grech, said of European markets.

The FTSE 100 in London was up 0.97 percent while the DAX in Frankfurt rose 0.61 percent. The CAC 40 in Paris added 0.95 percent.

But Todd Salamone, director of research at Schaeffer’s Investment Research, said that stocks tend to rise along with oil prices over the long term. “The recent breakdown in the pattern has largely been due to fears of supply shocks,” he said. “But the oil rally could also be attributed to a stronger world economy.”

Still, investor sentiment remains fairly buoyant even though this week has seen interest rate increases from the European Central Bank and the People’s Bank of China, and confirmation that Portugal is looking to tap a European bailout fund.

The euro remained supported in the markets by the European bank’s decision on Thursday to raise its main interest rate by a quarter percentage point to 1.25 percent and expectations it will increase again, despite worries over Portugal.

The 17-nation currency posted a fresh 15-month high of $1.4433 on Friday.

With scheduled economic news sparse, investors will be keeping a close watch on developments in Hungary, where finance ministers from Europe are gathering. Portugal’s bailout request is set to be the main topic of discussion, and one European official said that preliminary estimates showed Lisbon would need about 80 billion euros or $114 billion.

The monetary affairs commissioner, Olli Rehn, said that he hoped a final deal will be in place by mid-May, but that it was essential for opposing parties in Portugal to reach a “cross-party” agreement.

Earlier in Asia, Hong Kong’s Hang Seng added 0.5 percent to 24,396.07, and South Korea’s Kospi was up 0.3 percent at 2,127.97.

Mainland Chinese shares edged higher with the benchmark Shanghai Composite Index closing up 0.7 percent to 3,030.02, and the Shenzhen Composite Index of China’s smaller, second exchange rising 1.15 percent to 1,285.99.

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