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Oil Rises to 29-Month High on Concern Libya Supply Disruptions Will Spread

Oil rose to the highest in 29 months in New York as escalating violence in Libya renewed concern supply disruptions may spread through the Middle East.

Crude gained as much as 1.9 percent after fighting between Libyan rebels and troops loyal to Muammar Qaddafi intensified. Hedge funds raised purchases of futures to an all-time high for a second week on expectations cuts will continue. Citigroup Inc. increased its Brent oil price estimate, saying the threat of more output disruptions supports a “fear premium.”

“Everyone is expecting the fighting to continue, and possibly expand to other Arab countries,” said Ken Hasegawa, a energy trading manager at broker Newedge in Tokyo. “A lot of money, especially speculative money, has come into the oil market. We may see more money coming unless something cools this market.”

Crude for April delivery increased as much as $1.97 to $106.39 a barrel in electronic trading on the New York Mercantile Exchange, the highest intraday price since Sept. 29, 2008. The contract was at $106.12 at 1:34 p.m. Singapore time. Futures rose 6.7 percent last week and are up 30 percent from a year earlier.

Brent crude for April settlement gained $1.19, or 1 percent, to $117.16 a barrel on the London-based ICE Futures Europe exchange. The contract jumped 3.4 percent last week, the sixth weekly increase.

Record Net-Longs  

Citigroup raised its Brent price estimate for 2011 to $105 a barrel from $90 and increased the forecast for next year to $100, according to a report by analysts including Mark C Fletcher.

Violence in Libya has cut output in the North African country by as much as 1 million barrels a day, according to the International Energy Agency. Libya pumped 1.59 million barrels a day in January, Bloomberg News estimates show.

Hedge funds and other large speculators increased net-long positions amid the turmoil. Wagers on higher prices increased by 27 percent in the seven days ended March 1 to 305,408 futures and options, the most in records dating back to June 2006, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. The total jumped 65 percent since Feb. 15.

Demonstrations have toppled leaders in Tunisia and Egypt, while there have been protests in countries including Iran, Yemen and Oman. In Saudi Arabia, the biggest oil producer in the Organization of Petroleum Exporting Countries, websites have called for a nationwide “Day of Rage” on March 11 and March 20, according to Human Rights Watch.

Saudi Arabia

“We’re hearing increasing calls for protest in Saudi Arabia, which is the big, great threat hanging over the oil market at the moment,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “You couple the supply risks in the Middle East with some more positive demand data from the developed world and it’s not surprising that you see the oil price push higher.”

Oil in New York on March 4 settled above a price observed by technical analysts as a point from which the rally may continue. Thislevel, at $103.39 a barrel, represents the so- called 61.8 percent Fibonacci retracement of the drop to $32.40 in December 2008 from a record high of $147.27 in July that year, according to data compiled by Bloomberg. The next retracement level is $120.16.

“It’s easy for oil today to go up $10 at a time,” said Newedge’s Hasegawa. “So it’s possible once Brent gets to $120 it could go to $130.”

The turmoil in the Middle East also pushed oil products prices higher. Gasoline for April delivery gained 2.95 cents, or 1 percent, to $3.0759 a gallon on the New York Mercantile Exchange. Prices advanced 11 percent last week.