Oil rises on week; Mideast supply risks in focus

SAN FRANCISCO (MarketWatch) — Crude-oil futures gave up the bulk of early gains by the close of floor trading Friday, as investors grew cautious ahead of an upcoming contract expiration and a long holiday weekend that could involve more violent protests in Bahrain, Yemen and Libya.

“There’s all this uncertainty going on with the Middle East. A lot of traders, instead of going long oil, are just cutting their positions and kind of letting go,” said Mike Zarembski, senior commodities analyst with OptionsXpress in Chicago.

For the week, however, U.S. oil futures snapped a two-week losing streak to advance 0.7%, and London-traded Brent crude gained more than 1%.

Oil for March delivery (CLH11 86.15, -0.21, -0.24%) , the front-month contract, ended Friday’s session down 16 cents, or 0.2%, at $86.20 a barrel on the New York Mercantile Exchange, clipping the contract’s weekly gain to 0.7%. March oil expires Tuesday, after U.S. financial markets reopen following Monday’s President Day holiday.

Oil for April delivery(CLJ11 89.81, +0.97, +1.09%) , which is more actively traded, rose 87 cents, or 1%, to $89.71 a barrel, also up 0.7% for the week.

And March gasoline futures(RBH11 2.53, -0.01, -0.52%)  ended up 2 cents, or 0.9%, at $2.55 a gallon, rallying 3.5% for the week.

New York oil futures had traded up more than 1% earlier, pushing up weekly gains to about 2%, as mounting protests in oil-producing countries in the Middle East, and increasingly violent clashes with government forces, fed worries about a shock to supplies from the region.

Possibly defusing some of these worries, President Barack Obama released a statement in the early afternoon saying he was “deeply concerned” by reports of violence in Bahrain, Libya and Yemen, and that the U.S. urged the governments of the three countries to “show restraint in responding to peaceful protests.”

Transatlantic spread

The gap between U.S. and European oil benchmarks also continued to roil energy markets.

Brent crude-oil futures, the European benchmark traded in London, made a late-session grab for gains before closing lower. April Brent closed down 7 cents, or 0.1%, to $102.52 a barrel on ICE Futures Europe, bringing its premium to New York’s WTI contract to $12.81 a barrel. See related story on what’s in store for Brent, WTI.

The difference between same-month Brent and WTI contracts had hit about $16 last week but had started to narrow in recent days -- possibly as some traders that had successfully bet on the trend started to take some money off the table, said OptionsXpress’ Zarembski. Reducing short bets on WTI, and long positions in Brent likely helped U.S. oil futures earlier in the week.

“Positions were being covered at steep losses,” he said. “Now they’re probably out of that trade,” he said.

The Brent contract has rallied on pro-democracy protests in Egypt and elsewhere in the region, in part due to worries about oil transport to Europe through Egypt’s Suez Canal. Those gains, plus a supply glut at the U.S. hub of Cushing, Okla., have reversed the typical relationship between Brent and WTI, the light, sweet crude-oil futures traded on Nymex.

“Brent is likely being impacted by geopolitical tensions in the Middle East because of the potential impacts in the Mediterranean markets served by Brent,” Adam Sieminski, Deutsche Bank’s chief energy economist, wrote in a morning note.

He said the bank’s energy team had cut its Nymex WTI price forecasts to $91 a barrel for 2011 and raised its Brent outlook for the full year to $101 to account for the shifts.

“Changes in the pipeline transportation network should bring WTI and Brent prices closer over time, but we do not foresee the re-emergence of a WTI premium,” wrote Sieminski.

Protests and clashes

On Friday, antigovernment demonstrations entered a fifth full day in Bahrain and took an increasingly violent turn. Bahraini security forces fired tear gas near the capital’s Pearl Square, according to The Wall Street Journal, while in Sitra, thousands gathered for the funeral of three men killed in clashes with government security forces Thursday. Read more about Bahrain at WSJ.com.

Bahrain is the most vulnerable of the oil-rich Gulf Cooperation Council economies, noted emerging markets analysts at RBS Securities. It’s also next to Saudi Arabia’s Eastern Province, the location of most of the kingdom’s major oil reserves. And it’s home to the U.S. Fifth Fleet “signifying the importance attached to the country by the West.”

In Libya, dozens of protesters have been killed by supporters of the government and security services, said opposition groups and Human Rights Watch, a U.S. based human rights group, adding to reports.

And media reports said tens of thousands of protesters demonstrated in Taiz, one of Yemen’s largest cities. One protester reportedly died. Read more on Yemen at WSJ.com.

At midmorning, Egyptian state-run media said Egypt had agreed to let two Iranian navy ships pass through the Suez Canal, according to the Associated Press. Iran has said the ships are heading to Syria for training purposes. Israel has said the move is a provocation by Iran, an ally of Syria.

Financial markets had little reaction to the Chinese central bank decision to lift reserve requirements by 0.5%, a move largely expected by analysts and the market.

U.S. stocks posted modest gains, with energy shares leading the S&P 500(SPX 1,343, +2.58, +0.19%)  to a fractional advance.

March natural gas futures (NGH11 3.87, -.00, -0.08%) closed up 1 cent, or 0.2%, to $3.876 per million British thermal units but lost 0.9% for the week.

Marching heating oil futures (HOH11 2.72, -0.02, -0.64%) fell 2 cents, or 0.7%, to $2.71 a barrel and gained 0.6% for the week.

(Source: http://www.marketwatch.com/story/oil-gains-as-bahrain-protests-intensify-2011-02-18?pagenumber=2)