Libya crisis drives oil to 29-month high

Crude oil prices raced higher on Friday, with the New York contract closing at a fresh two-year peak as traders watched heavy fighting in Libya, particularly in the oil-important east.

New York's light sweet crude for April delivery closed at $US104.42 a barrel, a hefty $US2.51 gain from Thursday.

The benchmark WTI contract has added about $US18, or more than 21 per cent, over the past two weeks. It hit an intraday peak on Friday at $US104.60, the highest level since September 29, 2008.

In London, Brent North Sea crude for April gained $US1.18 to settle at $US115.97.

'New investors are going to hit the market,' said Rich Ilczyszyn of brokerage Lind-Waldock. 'This could open the door to $US110, even $US115 depending on how things unfold in the Middle East.'

Ilczyszyn said the sharp rally in oil prices was not 'specifically' about supply and demand, but rather 'an emotional trade'.

In addition, traders did not want to be short oil going into the weekend, he said.

'Saturday, Sunday, we don't know what is going to happen,' he said. 'There is too much risk.'

Forces loyal to Libyan leader Muammar Gaddafi and opposition forces seeking his ouster clashed in Tripoli, the capital, while Libyan warplanes bombed rebel positions in the eastern part of the country.

Rebel forces claimed to have control of the oil ports of Brega and Raslanuf in the east, scenes of fierce fighting.

'The supply disruption in Libya is likely to extend for several months,' said Andy Lipow at Lipow Oil Associates.

'This is a lot of supply for the world in a growing demand environment.'

Lipow noted that production in Nigeria and Angola was expected to slow in the next couple of months for maintenance reasons, further pressuring the supply of light crude.

Libya, like Nigeria, produces a light crude oil that is low in sulfur, making it easy to refine.

Libya produces about 2.0 per cent of the world's crude oil.

The north African country typically pumps about 1.6 million barrels a day, but the head of Libya's National Oil Corporation, Shukri Ghanem, said on Thursday that oil production had 'been halved'.

(Source: http://bigpondnews.com/articles/Finance/2011/03/05/Libya_crisis_drives_oil_to_29-month_high_585151.html)