Friday, March 18, 2011

Oil Prices Retreat After Libya Cease-fire Call

Oil prices plunged Friday after Libya declared a cease-fire and said the
government would stop military operations against rebels.

Foreign Minister Moussa Koussa announced the cease-fire Friday, shortly after
the U.N. voted to authorize a no-fly zone and "all necessary measures,"
including airstrikes, to protect Libyan citizens from forces loyal to Moammar

According to Associated Press report, Koussa said the cease-fire "will take the
country back to safety" and ensure security for all Libyans. Despite his
announcement there were reports that fighting continued in some parts of the

Benchmark crude dropped on the New York Mercantile Exchange after the
announcement, tumbling $2.51 in 15 minutes, or nearly 3 percent. At midday West
Texas Intermediate oil for April delivery was down 79 cents at $100.63.

In London, Brent crude lost $1.16 at $113.49 per barrel on the ICE Futures

Friday's drop was just the latest turn in an especially volatile market. Oil
prices surged as much as 27 percent in the past month as pro-reform uprisings
swept through North Africa and the Middle East, ousting leaders in Tunisia and
Egypt. The region is home to OPEC heavyweights Saudi Arabia and Iran, and it
produces 27 percent of the world's oil.

Early Friday crude prices climbed as the U.N. no-fly zone announcement raised
concerns that military units from the U.S. and Europe would be pulled into the

"Now that doesn't seem as much a possibility," said Addison Armstrong, director
of market research at Tradition Energy.

Still, oil prices remain well above where they were before the Libya uprising.
The rebellion continues to cut off most of Libya's oil exports, which
satisfied nearly 2 percent of world demand at 1.5 million barrels per day. Oil
traders say they're also worried that the U.N. action, combined with growing
unrest in Bahrain and Yemen, will further erode trade relations
between OPEC and
the West.

Yemeni security forces shot at anti-government demonstrators Friday, killing at
least 31 people. And a senior Iranian cleric urged Bahrain's Shiites to keep up
their protests against the Sunni monarchy "until you die or win."

The recent jump in oil has hit energy markets as the global economy gradually
recovers from recession. Higher prices resulted in a surprise trade
deficit last
month in China and helped keep U.S. gas pump prices at the highest levels ever
for this time of year. Economists say the rise in oil prices has hurt oil and
gas demand in the U.S., the world's largest petroleum consumer. The Energy
Information Administration said total petroleum demand in the U.S. dropped in
the first two weeks of March by 200,000 barrels per day.

Moody's Investors Services said if oil stays above $100 per barrel, it will
further weaken the global economic recovery. The price of oil, coal and natural
gas could rise as Japan rebuilds and increases imports to make up for power
generation lost from damaged nuclear reactors. Most of Japan's power — about 28
percent — comes from coal-fired plants. More than 50 nuclear reactors provide
roughly 27 percent of the country's power.

Higher oil prices have also pushed up airfares around the world, and
food prices could rise as costs increase for fertilizers and fuel to run farm equipment and to transport produce, Moody's said. Automakers in Japan and elsewhere could see sales lag because of higher fuel prices.

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