April crude futures tap intraday low below $104 a barrel
By Myra P. Saefong and Sarah Turner, MarketWatch
SAN FRANCISCO (MarketWatch) — Oil futures edged lower Tuesday, pulling back after a two-session gain of nearly 4% that lifted prices to their highest level in 29 months, as traders continued to scrutinize developments in the Middle East and North Africa region.
Likely contributing to pressure on prices Tuesday, news reports say more countries may step in to boost production following a drop in Libyan output and Moammar Gadhafi may be looking for a way to step down and halt the fighting in Libya.
Crude oil for April delivery (CLJ11 104.95, -0.49, -0.47%) declined 79 cents to $104.65 a barrel on the New York Mercantile Exchange. The contract earlier hit an intraday low of $103.33 a barrel.
“This brief calming in the oil markets is likely to be short lived as Libya seems to be moving closer to a lengthy civil war, with no clear ending in sight,” said Kevin Kerr, editor of Kerr Commodities Watch.
The retreat Tuesday came as The Wall Street Journal reported that Gadhafi’s inner circle of advisers have invited rebels and tribal leaders to talk about possible political solutions to the turmoil gripping the country.
It added that the rebel-led governing council in Benghazi has so far rejected the invitation on the grounds that it wasn’t sincere. Other reports also indicated Gadhafi was looking for a deal that would allow him to step down.
But a Libyan government spokesman has disputed the claim, saying reports of negotiations with the oppositions are “lies,” according to CNN.
Intensifying risks
Foreign governments also continue to prepare for possible military intervention, including a potential no-fly zone over Libya, according to reports.
A no-fly zone is “basically an act of war,” said Kerr, and would “likely escalate things to the next level and cause prices to rally even more.”
In a note to clients, Edward Meir, senior commodity analyst at MF Global, said that if NATO intervenes in the conflict, “we likely will see a speedier collapse of the Libyan regime, as it is doubtful that the government could survive much longer if Gadhafi’s air power and helicopter gunships were taken out.”
“We suspect that the flow of events is still too uncertain and fluid to enable us to reach any definitive conclusions either on when the Libyan regime may fall, or for that matter, when crude exports could start flowing again,” Meir said.
The Financial Times newspaper reported that Kuwait, the United Arab Emirates and Nigeria may join Saudi Arabia in increasing output to make up for the drop-off in Libyan oil.
The three major oil producers could raise their output by a combined 300,000 barrels a day, on top of the extra 700,000 barrels per day coming from Saudi Arabia, the report said.
