Last Updated: Tue Feb 22, 2011 12:25 pm (KSA) 09:25 am (GMT)

Oil producers, users sign charter as prices spike

Libya is one of the world's biggest oil producers & has the largest proven oil reserves in Africa
Libya is one of the world's biggest oil producers & has the largest proven oil reserves in Africa

Energy producer and consumer states signed a charter in Riyadh on Tuesday aimed at limiting price volatility and stabilizing the market, even as Middle East turmoil propelled prices to two-year highs.

The non-binding charter was signed by 87 countries, representing 90 percent of global oil production and consumption, said Saudi Arabia's deputy oil minister, Prince Abdul Aziz bin Salman.

"We are here today to formally and officially confirm the approval of the IEF (International Energy Forum) charter," Prince Abdul Aziz said at the opening meeting of the IEF extraordinary ministerial meeting.

The host country's oil minister, Ali al-Naimi, said the charter aims to create a "global energy market characterized by transparency and stability" and to "strengthen cooperation for the benefit of future generations."

On the eve of the forum, Prince Abdul Aziz said the one-day meeting would also tackle the key issues of short-term price volatility and long-term demand and supply of crude oil and gas.

IEF's secretary general, Noe van Hulst, has said the group's ministers agreed that sharp fluctuations in the market were harmful.

Oil prices soared to near $93 a barrel Tuesday in Asia as Libyan leader Moammar Gadhafi struggled to maintain his grip on power in the OPEC nation amid violent protests calling for his resignation.

Benchmark crude for March delivery was up $6.75 at $92.95 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. Markets were closed Monday in the U.S. for a holiday. The contract last settled Friday, down 16 cents at $86.20.

U.S. crude futures hit a 2-1/2 year high on Tuesday as violence in Libya led one oil company there to shut in 100,000 barrels per day (bpd) of the country's 1.6 million bpd output.

In London, Brent crude for April delivery gained $1.21 to $106.95 a barrel on the ICE Futures exchange.

Key Libyan government officials at home and abroad have resigned and air force pilots defected amid a bloody crackdown on protests in the capital of Tripoli that follow weeks of demonstrations in neighboring Egypt that ousted the long-serving president. At least 233 people have been killed so far in the Libyan uprising.

Foreign companies evacuate

 Unlike Egypt, Libya is a significant producer of crude and we may be seeing the largest disruptions since the start of the second Gulf War 
Schork report, energy consultant

Concern among traders is growing that some of Libya's crude exports of 1.0 million barrels a day could be affected as foreign oil companies evacuate staff from the country. Traders are also eyeing protests in Iran, the second-largest producer in the Organization of Petroleum Exporting Countries.

"Unlike Egypt, Libya is a significant producer of crude and we may be seeing the largest disruptions since the start of the second Gulf War," energy consultant The Schork Report said.

Analysts are also worried the jump in energy costs could hurt consumer spending and stymie a fragile recovery in developed countries. The crisis in the Middle East and North Africa - which has brought down governments in Tunisia and Egypt and sparked protests in Yemen, Bahrain, Iran, and Jordan - has added about $10 to the price of crude, according to Capital Economics.

"An additional $10 on the price of oil is not insignificant, particularly for weaker economies in Europe facing a major fiscal squeeze," Capital Economics said in a report. "Given the pace at which events are unfolding it would be daft to rule out a spike to $140 or beyond in the coming weeks if the unrest disrupts output from the larger oil producers."

IEA’s warnings

 Oil prices are a serious risk for the global economic recovery 
IEA\\\'s chief economist

In other Nymex trading in March contracts, heating oil rose 11.2 cents to $2.82 a gallon and gasoline gained 10 cents to $2.65 a gallon. Natural gas futures were up 9.2 cent at $3.97 per 1,000 cubic feet.

High oil prices pose a danger for global economic growth and industrialized countries stand ready to release oil from stockpiles to meet any Middle East supply disruptions, the IEA's chief economist said on Tuesday.

Investors fear further disruption both in Libya and beyond as protests grip the North Africa and the Middle East, the world's top oil producing region.

High oil prices were detrimental to the interests of both consumers and producers as they could derail economic growth and curtail fuel demand, the International Energy Agency's Fatih Birol said.

"Oil prices are a serious risk for the global economic recovery," Birol told reporters on the sidelines of an energy conference in Indonesia on Tuesday. The IEA is adviser to 28 industrialized nations on energy policy.

"The global economic recovery is very fragile -- especially in OECD countries," Birol said.

The political turmoil that has swept across the Middle East and North Africa could push prices even higher, he said.

 The largest risk that could be a drag on Japan's economic recovery is rising crude oil prices due to the political unrest in the Middle East 
Banri Kaieda, trade and trade minister

The rising cost of oil would weaken the trade balances of industrialized countries, add to inflation and put pressure on central banks to adjust interest rates, he added.

If U.S. oil prices touched $100 a barrel, the world's third largest economy Japan would be spending 3 percent of its GDP alone on oil imports, Birol said.

Japanese Prime Minister Naoto Kan on Tuesday summoned his key ministers for an emergency meeting as oil prices soared to two-year highs amid escalating violence in the Middle East.

The government voiced concern about the impact of the price rises on the budding economic recovery in Japan, which relies on imported oil, 90 percent of which comes from the Middle East.

"It is possible that developments in the Middle East will affect Japan in a number of ways," Kan said before meeting his foreign, finance, trade and other ministers, according to the Kyodo News agency.

Economy, Trade and Industry Minister Banri Kaieda said: "The largest risk that could be a drag on Japan's economic recovery is rising crude oil prices due to the political unrest in the Middle East."

Oil companies, including Italy's Eni, Royal Dutch Shell PLC, U.K.-based BP and Germany's Wintershall, a subsidiary of BASF, were evacuating their expat workers or their families or both. BP and Wintershall said they were temporarily suspending operations; Eni said production continued normally.

Libya is one of the world's biggest oil producers and has the largest proven oil reserves in the whole of Africa. Eni, Italy's largest natural gas and oil company, has operated there for more than 50 years and is the biggest foreign player in Libya.

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