Oil prices will likely gain further ground this week after Friday's solid U.S. payrolls report boosted hopes that the recovery is gathering momentum in the world's largest oil consumer, CNBC's weekly survey of market sentiment showed.
The threat of supply disruption from the Middle East and North Africa will continue to loom over the market and keep prices well supported. But barring any significant production or export stoppages, the geopolitical 'fear factor' is expected to play less of a central role in driving price direction in the coming weeks as investors re-focus on the economic outlook.
"I think the MENA (Middle East and North Africa) headlines are still supportive, but at this point, they are fading to the background a bit and economics will become the more overriding factor again," said Linda Rafield, Senior Oil Analyst at Platts.
A CNBC poll of analysts and traders expect prices to end this week higher overall. Seven out of eight respondents expect oil prices to rise this week while just one respondent said prices would drop, the survey showed.
U.S. crude oil futures priceson Friday jumped more than 1 percent to their highest close in 2-1/2-years after nonfarm payrolls registered solid growth for a second month in March and the jobless rate hit a two-year low of 8.8 percent.
"Any upside surprise may fuel oil prices as speculators take the headline as a short-term positive for the U.S. economic recovery," said John J. Licata, Chief Commodity Strategist at Blue Phoenix Inc., speaking ahead of the jobs report.
On the New York Mercantile Exchange, May crude futures jumped $1.22, or 1.14 percent, to settle at $107.94 a barrel on Friday, the highest close since ending at $108.02 on Sept. 25, 2008. NYMEX crude ended with a weekly gain of $2.54.
'Libya fatigue' is starting to set into the market as investors have factored in a prolonged standstill to the country's exports and production under the worst scenario. Libya typically produces about 1.6 million barrels a day and exports have been reduced to a "trickle" because of the conflict, according to the International Energy Agency.
Libyan rebels say they have negotiated a deal to sell crude oil via Qatar to help buy basic necessities including food, fuel and medicine. The agreement covers oil from territory held by the rebels mainly from Libya's southeast, and excludes the areas of Brega and Ras Lanuf.
JPMorgan oil analysts led by Lawrence Eagles said logistical and payment issues could complicate the viability of a partial resumption of Libyan crude exports.
"After weighing all the barriers and pitfalls that might frustrate such well-intentioned initiative, we count ourselves among the skeptics," Eagles wrote. "We continue to forecast a meaningful increase in spot Brent prices and price volatility in the second quarter."
West Africa — the source of light, sweet crude grades favored by U.S. refiners to turn into gasoline and light products — may provide the next flashpoint for the oil markets. Possible unrest ahead of Presidential elections in Africa's top producer Nigeria may spill over into the oil-rich Niger delta halting exports to customers in the U.S., Europe and Asia.
Nigeria postponed parliamentary and presidential elections by one week on Sunday after failing to get logistics prepared in time, a major embarrassment for a nation hoping to break with a history of chaotic polls, Reuters reported.
West Africa, Technicals
Meanwhile, striking oil workers in Gabon stopped the African country's estimated 240,000 barrels of daily crude oil production, a union official told Reuters on Saturday. Gabon is Africa's seventh largest oil producer.
"With elections in Nigeria suffering a setback, and a strike stalling Gabon's output, the market could also pay more attention to the security of African supply," said Rachel Ziemba, Senior Research Analyst, CEEMEA and Global Macro at Roubini Global Economics. "The market has plenty of inventories to draw on but risks are to the upside."
On a technical basis, Daryl Guppy, of Guppytraders.com says any pullback is a buying opportunity as oil's bias remains to the upside this week. But Tom James, Co-Founder & Director, at Navitas Resources, describes the oil market as "technically overbought."
He adds: The market is "ripe for a drop back to the sideways range of $108 if the U.S. dollar does nothing. I like to be on the short side of this market rather than the long side up here. It would take some fresh news of major consequence to push us higher next week."