OREANDA-NEWS. March 02, 2011. Brent crude futures for April surged USD 3.62 to settle at USD 115.42/bbl, the highest finish since front-month Brent closed at USD 116.22 on Aug. 27, 2008. Brent's intraday peak was USD 116.32, hit post-settlement. US light, sweet crude for April delivery rose USD 2.66 to settle at USD 99.63/bbl, the highest close since front-month crude ended at USD 100.64 on Sept. 30, 2008. Brent's premium to WTI topped USD 15/bbl, up more than 80 cents intraday, after last week's record USD 16.91. The rally in Brent has been more robust, since Europe is more vulnerable to supply disruptions from Libya and the region.

Crude oil futures saw more upside on Tuesday and settled at their highest level since September 2008 as supply disruptions and more turmoil in the Middle East and North Africa kept investors on edge. Crude jumped nearly 3% as Libyan rebels geared up for renewed clashes with forces loyal to leader Muammar Qaddafi. Saudi Arabia’s benchmark stock index plunged the most since November 2008 on concern regional unrest would extend to the kingdom and as Saudi authorities detained a Shiite cleric, Iranian protesters clashed with security forces in Tehran, and Iran’s two key opposition figures were arrested.

Stateside, prices ticked up after the American Petroleum Institute reported late last evening that US crude stockpiles declined 1.08 mn bbl to 344.7 mn and gasoline inventories dropped 4.9 mn bbl, the most since May 2009. Inventory data have decidedly been on the back burner with the Middle East and North African events squarely in the forefront, but if these predictions pan out in this week’s EIA report, prices could head even higher. Also, Bernanke said in his testimony that the recent surge in oil prices was unlikely to have a big impact on the US economy, but could lead to weaker growth and higher inflation if sustained. These comments were echoed by the World Bank.
Moving forward, we think the petroleum market has become hypersensitive to the geopolitical factor, with Libya on the verge of civil war, the threat of disruption in Iran, and the specter of unrest rearing its head in Saudia Arabia. At this point, we expect to see the current prices or higher for at least a month or two, although the sheer uncertainty of the end game all across the Middle East and North Africa heightens the upside risk which threatens to derail the economic recovery if prices stay consistently high over a 3-4 month period, we believe. In the upshot, we could see Brent reaching the USD 120 level and WTI navigating toward USD 110, with roughly a USD 10 premium to the American benchmark.