Oil May Surge to $220 If Libya, Algeria Halt, Nomura Says  

Bloomberg has an article quoting an investment bank predicting oil prices may hit $220 a barrel if Libya and Algeria cease exports - Oil May Surge to $220 If Libya, Algeria Halt, Nomura Says. This makes the assumption that the global economy could handle prices at this level before growth (and demand) fall away, bringing prices back with them...

Oil prices may surge to $220 a barrel if political unrest in North Africa halts exports from Libya and Algeria, Nomura Holdings Inc. said.

Crude futures rose to almost $100 in New York today, the highest in more than two years, as violence in Libya threatened to disrupt exports from Africa’s third-biggest supplier. Libyan leader Muammar Qaddafi vowed yesterday to fight a growing rebellion until his “last drop of blood.” Protests in Algeria led to the ending of a 19-year state of emergency.

“If Libya and Algeria were to halt oil production together, prices could peak above $220 a barrel and OPEC spare capacity will be reduced to 2.1 million barrels a day, similar to levels seen during the Gulf war and when prices hit $147 in 2008,” the Tokyo-based bank said in a note today.

The SMH reports that rising oil prices are making Wall Street nervous - Oil price touches $US100 as Libya crisis worsens.

US crude surged to a 28-month high of $US100 a barrel on Wednesday as escalating violence in OPEC producer Libya slashed output there and investors bet the unrest could spread to other oil exporters.

Brent has posted the biggest three-day gain since October 2009, rising to as much as $US111.85 a barrel. That marked its highest since October 2008, shortly after the collapse of US investment bank Lehman Brothers. US crude has shot up more than 15 per cent since Friday.

West Texas Intermediate futures rose 3.7 per cent to $US99 a barrel in New York, paring some earlier gains.

Brent gave up some of its earlier advance to trade up 5.1 per cent at $US111.18. A lethal political standoff between Libyan strongman Muammar Gaddafi and rebel factions now in control of oil-rich eastern Libya has already cut output in the world's No 12 crude exporter by more than 25 per cent, or 400,000 barrels a day, according to Reuters calculations.

The price surge raised concern about the impact of costly fuel on a fragile US economic recovery and dragged US equities lower. A jump in oil to a record $US147 a barrel during 2008 led to demand destruction and contributed to the deepest global economic downturn since World War II.

The FT has a look from some comments by John Roberts about the Libyan revolt implying the Saudis may not be able to prevent a similar occurence by handing out more of their oil income to the people - If Libya revolts, Saudi Arabia could be next.

If you look at Libya right now, something like 56 per cent of per capita income is directly attributable to oil. The government directly controls most household budgets.

It should be able to buy people off in the way that the Kuwaitis have done and the Bahrainis are now seeking to do, by raising incomes and increasing subsidies.

Whatever the Libyans are doing on this front is not working – the people want more. Simply having availability to cash doesn’t bail you out.

If that is the case with Libya, which has a comparible ratio of income to population to Saudi Arabia, one might worry more about the stability of Saudi Arabia, which is of course the big one.

AP reports the Saudis are going to give it a try anyway, announcing a $36 billion handout - Saudi opens its wallet to stave off protests.

As Saudi Arabia's 86-year-old monarch returned home from back surgery, his government tried to get ahead of potential unrest in the oil-rich country Wednesday by announcing an unprecedented economic package that will provide Saudis interest-free home loans, unemployment assistance and sweeping debt forgiveness.

The total cost was estimated at 135 billion Saudi riyals ($36 billion), but this was not largesse. Saudi Arabia clearly wants no part of the revolts and bloodshed sweeping the already unsettled Arab world.

Saudi officials are "pumping in huge amounts of money into areas where it will have an obvious trickle-down by addressing issues like housing shortages," said John Sfakianakis, chief economist for the Riyadh, Saudi Arabia-based Banque Saudi Fransi. "It has, really, a social welfare purpose to it."