LONDON: Oil jumped more than $1 per barrel on Tuesday after OPEC member Libya said oil producers would find prices of $100 a barrel more comfortable because of higher food prices and a weaker dollar.
Benchmark US crude for December rose to a high of $84.14, up $1.19, before slipping back to trade at around $83.94 by 1331 GMT, adding to gains of nearly 2 percent on Monday.
ICE Brent climbed 82 cents to $85.44.
Shokri Ghanem, chairman of Libya’s National Oil Corp, told Reuters he thought oil prices would get closer to $100 by the end of the year. Ghanem, the top oil official for Libya, said the dollar had fallen and prices of the other commodities had risen.
"I think that we can get closer to $100. There is a sort of tacit compensation for the increase in the prices of the other commodities. The price is inching up and I think it will be closer to $100," Ghanem said.
The Libyan official’s comments came a day after top oil exporter Saudi Arabia shifted upwards from a price range of $70-$80 it has backed for around two years, saying oil at between $70 and $90 a barrel was comfortable for consumers.
Michael Guido, director of hedge fund sales at Macquarie Bank in New York, said he thought the price spike was triggered by the Libyan comments.
"I think the spike was off Libya. However, there is a new bullish spin today among the funds in regards to where the barrel really belongs when looking at the dollar and other commodity markets," Guido said.
"Perhaps the market should be resting up at $80 to $90 as opposed to $70 to $80. Eighty dollars is the new $70 when looking at summer support levels."
Quantitative easing
The Libyan comments came ahead of an expected decision by the Federal Reserve on Wednesday to pump more money into the US economy in what economists expect will be a second round of "quantitative easing," also known as QE2.
The US central bank is widely expected to decide to buy around $500 billion in longer-term Treasuries over about six months in a move that could encourage more dollar weakness.
The dollar fell against a basket of currencies on Tuesday, adding extra support to oil and commodities. A fall in the dollar makes dollar-denominated commodities cheaper.
Traders and analysts were wary ahead of the Fed’s move, expected at the end of a two-day meeting starting on Tuesday.
For much of this year, crude oil prices have been stuck between $70 and $80 per barrel, a range that OPEC has said for the past two years it has seen as ideal for both producers and consumers.
But on Monday Saudi Arabia appeared to raise this range.
Naimi’s comments were understood to signal the world’s top oil exporter could allow prices to climb as high as $90.
Adding to the nervous mood for oil markets were reports of an explosion at an oil pipeline in Yemen, which local officials blamed on suspected militants.
A Yemeni official said the damaged pipeline in the province of Shabwa was operated by a South Korean firm but declined to give further details. It was not immediately clear whether exports from the small oil producer would be affected.
Yemen is a small oil producer with output of around 300,000 barrels per day, according to US official estimates.
Industry group the American Petroleum Institute will issue its latest US crude oil inventory data later on Tuesday.
Analysts expect stockpiles in the world’s largest energy consumer to have risen for the fourth time in five weeks last week as imports increased.
