Oil lower as disruption concerns ease

Oil prices continued their roller-coaster ride Thursday, with the North American benchmark passing above $103 US a barrel before retreating to close lower.

April light sweet crude rose as much as 5.4 per cent to $103.41 a barrel in electronic trading overnight, before closing at $97.28 US, down 82 cents, in New York as concerns receded that turmoil in Libya would disrupt supplies.

In London, Brent crude — the European and Asian benchmark — added 11 cents to settle at $111.36 on the ICE Futures exchange.

Army units loyal to Gadhafi Thursday attacked a mosque where protesters had taken refuge, blasting its minaret and opening fire on others protecting a local airport.

Prices receded after the International Energy Agency said the rebellion in Libya may have cut oil production less than originally feared.

The International Energy Agency said that the violent uprising in Libya has forced oil companies to idle between 500,000 and 750,000 barrels per day of production, or less than 1 per cent of global daily oil consumption. That's roughly half of what Italy's Eni, Libya's largest oil producer, estimated earlier Thursday.

IEA can make up shortfall

IEA also said it can make up for any lost shipments from Libya by tapping into large surpluses held by member countries, which include the U.S., the United Kingdom, France and Germany. Altogether, member nations hold 1.6 billion barrels of emergency oil supplies, or enough crude to supply the group for 145 days. 

IEA said it is in close contact with OPEC as well. Saudi Arabia, the most important member of the Organization of Petroleum Exporting Countries, said that it would increase production to make up for any shortfalls due to unrest in Libya, if necessary. The Saudis currently produce about 8.5 million barrels of oil a day and have the capacity to produce more than 12 million barrels a day.

Thursday's drop suggests that traders "are starting to recognize that prices have become overextended," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

 Oil and gasoline prices will likely hold at elevated levels as long as Libya's future remains uncertain, said Michael Lynch, president of Strategic Energy & Economic Research. Prices should fall again once order is re-established. Libya relies on oil revenues and it will need to keep operations running no matter who is in charge, he said. 

"It doesn't look like there's any real damage to Libya's oil fields," Lynch said. "So once there's a government in place everything could get back up and running within a few weeks."

The Canadian dollar rose. Oil is the country's single biggest commodity export and a rise in oil prices could also prompt the Bank of Canada to raise interest rates in a move to head off inflation. The loonie closed up 0.56 cent to 101.71 cents US.