Oil prices are finally retreating from two-and-half year highs but the market is bracing for more volatility as anti-government protests threaten to spread beyond the borders of Libya towards the world's top exporter Saudi Arabia.
U.S. crude futures [CLCV1 Loading... ()
] on Wednesday dropped for a second day, offering some relief to global equity markets. Prices dipped below $105 after reassurances from OPEC members of ample spare capacity eased anxiety about export losses from Libya, Africa's third-largest oil producer. As of 1000 a.m. Singapore time, contracts for April delivery fell 61 cents to $104.41 a barrel. Brent crude [LCOCV1 Loading... () ] fell for a third day to below $113 a barrel in early trade.The message for oil markets this week is unequivocal: watch Saudi Arabia. Inspired by the unfolding 'Arab Spring', there have been Shi'ite marches in the past few days in the Kingdom's oil-rich east. Websites have called for a nationwide "Day of Rage" on March 11 and March 20 despite a move by King Abdullah to pre-empt popular unrest by boosting spending on housing, social welfare and education.
The Saudi government has been releasing Shi'tes detained last week according to activists quoted by Reuters. The move could be aimed at heading off the protests. The government has also warned it will clamp down on any dissent and one source indicated the protests could be called off.
But the markets continue to be jittery about the prospects of turmoil in the Kingdom. A CNBC poll of analysts and traders expect prices to end this week higher overall. Nine out of 10 respondents expect oil prices to rise this week while just one respondent said prices would drop, the survey showed. CNBC's poll correctly forecast the direction of oil prices last week.
"It's fear -- short-term fear of supply disruption," said John Vautrain, a senior vice president of the oil consultant Purvin and Gertz in Singapore, characterizing the current market mindset. "People are not worried that there's no oil in the tank. They're worried that there'll be no oil coming out of the Middle East. For the fear to go away, the revolutions must end."
