Oil Holds around $110

Monday, February 24, 2014

By Shadi Bushra, Reuters

Brent crude oil steadied around $110 a barrel on Monday, resisting sharp declines in some other risk assets on news of further supply losses in Africa and expectations of revived oil demand growth.

Libyan oil output plunged further over the weekend, falling to 230,000 barrels per day (bpd) on Sunday after a new protest shut the El Sharara field.

Before nationwide protests started in the middle of last year, Libyan oil production was closer to 1.4 million bpd.

"As long as the Libyan security situation is unstable, global oil prices will be buoyed," said Michael Poulsen, analyst at Danish consultancy Global Risk Management.

Brent crude was up 15 cents at $110.00 a barrel by 1440 GMT, after settling higher for a second straight week. U.S. oil was up 20 cents to $102.40, after climbing for the sixth week in its longest winning streak in more than a year.

Oil markets also found support from a fairly upbeat meeting of the world's top economies in Sydney, which announced a target of generating more than $2 trillion in additional output over five years while creating millions of new jobs.

Oil demand tracks global economic growth closely.

German business morale rose in February to its highest since July 2011, suggesting Europe's largest economy will grow faster in the first quarter after expanding only modestly last year.

The Munich-based Ifo think tank's business climate index, increased to 111.3, beating the consensus forecast that it would hold steady at 110.6.

Investors also kept an eye on global political tensions and the potential for further disruption to oil exports.

"One of the reasons for the price staying up around $110 is the geopolitical risk, with reduced exports coming out of Libya, negotiations over lifting sanctions on Iran going very slowly, Syria remaining in the background and maybe Ukraine as well as South Sudan," said Christopher Bellew, oil futures broker at Jefferies Bache.

In South Sudan, the capital of the main oil-producing Upper Nile region, Malakal, remains divided between the army and rebels, government officials say.

On Saturday, the national government over-ruled Upper Nile state's plan to partially shut down oil production and evacuate foreign workers after the rebel offensive.

A petroleum ministry official said South Sudan's oil production had fallen to about 170,000 bpd even before the rebel strike on Malakal, a drop of around a third since the fighting erupted in December.

With Brent crude at the upper end of its range of recent months, some investors expect prices to fall in the medium term.

"Correction potential has built up which should cause prices to fall as soon as the support lent by the cold winter weather in the United States fades away. We expect oil prices to drop in the spring," Commerzbank senior oil analyst Carsten Fritsch said.

(Additonal reporting by Manash Goswami in Singapore; editing by Christopher Johnson)

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