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Oil Rebounds From 11-Week Low on Libya Unrest, U.S. Supply Drop

February 16th, 2011

(Bloomberg) – Oil rebounded from an 11-week low in New York on signs U.S. stockpiles are shrinking and as political protests in the Middle East spread to Libya and Bahrain.

Futures rose for the first time in four days after the industry-funded American Petroleum Institute yesterday said crude inventories slid 354,000 barrels in the seven days ended Feb. 11. Energy Department data today may show stockpiles increased 2 million barrels. Associated Press reported the first-ever demonstrations in Libya against leader Muammar Qaddafi who has held power since 1969.

“The risk premium won’t disappear quickly as more countries such as Libya and Iran emerge as hot spots, but on the other hand the tension isn’t that powerful yet,” said Hannes Loacker, an analyst with Raiffeisen Bank International AG in Vienna. “Supply in the U.S. is good, so inventories will take a bit more time to come down.”

Crude for March delivery gained as much as 62 cents to $84.94 a barrel in electronic trading on the New York Mercantile Exchange. It was at $84.82 at 1:23 p.m. London time. The contract dropped to $84.32 yesterday, the lowest since Nov. 30. Brent for April settlement advanced $1.16, or 1.1 percent, to $102.80 a barrel on the ICE Futures Europe exchange in London.

Oil-supply totals from the API and DOE have moved in the same direction 75 percent of the time over the past four years. The Energy Department is scheduled to release its inventory report today at 10:30 a.m. in Washington.

Fibonacci Level

Futures in London may surge past $142 a barrel, to near the highest price ever, if futures close above a Fibonacci level at $104.98, according to technical analysis by brokers PVM Oil Associates Ltd. Brent climbed to a 28-month high of $104.30 on Feb. 14 as anti-government protests in North Africa spread through the Arab world, renewing concern that supplies from may be disrupted.

Demonstrators in Yemen clashed with police yesterday while Iranian security forces on Feb. 14 used tear gas to break up the biggest anti-government protests since June 2009. Fighting broke out in Bahrain before the funeral of one of two protesters killed this week, the official Bahrain News Agency said today.

Iran is the second-largest producer in the Organization of Petroleum-Exporting Countries, pumping about 3.7 million barrels a day, according to Bloomberg data. Libya’s January output was 1.6 million barrels a day. Bahrain produced about 32,000 barrels a day of crude in 2009 and 1.49 billion cubic feet of gas, according to the national oil and gas authority.

New York futures have outpaced London’s Brent this week, narrowing the difference between the benchmark prices. The April spread of the two contracts was at $14.34 a barrel today. The March West Texas Intermediate contract expires on Feb. 22.

Cushing Glut

U.S. crude inventories probably rose for a fifth week in the seven days ended Feb. 11 as TransCanada Corp. completed an extension of a pipeline to Cushing, adding to the glut at the country’s biggest oil-trading hub, a Bloomberg News survey showed. TransCanada started deliveries from Alberta to Cushing on Feb. 8 in the second phase of its Keystone pipeline project.

The Energy Department report may show gasoline stockpiles climbed 1.85 million barrels in the seven days ended Feb. 11, matching the longest streak of gains since August. The American Petroleum Institute said yesterday that inventories increased 1.24 million barrels to 241 million.

“Economic data in the U.S. and Europe are getting better than before and this is encouraging a lot of positive response from investors putting money into commodities,” said Ken Hasegawa, a commodity sales manager at broker Newedge in Tokyo. “Physically there’s no shortage of oil in the world.”

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By Grant Smith and Ann Koh

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