The direction for global crude oil prices this week is self-evident, according to the latest CNBC market sentiment survey.
WTI will continue to break north of $90 a barrel and Brent will push further into $100 plus territory as anti-government protests spread in the Arab world, engulfing OPEC producers Iran, Algeria and Libya.
Nine out of 11 respondents, or more than 80 percent, expect prices to rise this week while two predicted little change, the survey showed. None in the sample group forecast price declines.
"I can't see any outcome other than a sizeable increase in the price of crude oil this week," said Gavin Wendt, Founding Director & Senior Resource Analyst at MineLife Pty Ltd. "The contagion in North Africa/Middle East will continue to spread and the stakes are rising because the likelihood is that things will start to get shakier in a number of sizeable Middle Eastern oil producing nations. Oil markets haven't faced such a threat in a long time and speculators, traders and oil consumers will all be factoring in higher prices."
U.S. crude futures for April delivery rose as high as $91.70 a barrel during Monday's Asian session on the Globex, up $1.99 from Friday's settlement, reacting to anti-government protests in Libya which escalated over the weekend. ICE April Brent crude traded at $103.43 a barrel at 10.45 a.m. Singapore time, up 91 cents.
Alastair Newton, Senior Political Analyst at Nomura said regime collapse may be "imminent" in Libya, adding unrest has spread geographically "to the point where there does now appear to be a potential threat to oil and gas output."
Libya's unrest spread to the capital Tripoli on Sunday after scores of protesters were killed in the second city Benghazi, which appeared to have slipped out of control of forces loyal to strongman Muammar Gaddafi.
The Al-Zuwayya tribe in eastern Libya, Shaikh Faraj al Zuway, threatened to cut oil exports to Western countries within 24 hours unless authorities stopped what he called the "oppression of protesters".
Libya has the largest proven oil reserves in Africa with 44 billion barrels as of January 2010, according to the U.S. Energy Information Administration. In January, OPEC said Libya produced 1.57 million barrels of oil per day.
'Expect the Unexpected'
"Expect the unexpected in terms of news flow," JPMorgan's Lawrence Eagles noted. "And expect markets to respond equally rapidly — increasing the volatility in oil markets." Collectively, the producer countries undergoing upheaval are net exporters supplying roughly 4 million barrels a day of oil to global markets, Eagles said.
Oil traders are weighing up regional geo-politics from multiple fronts from Algeria to Yemen. "We now have a lot of oil exporting nations in play," said Rachel Ziemba, Senior Research Analyst, CEEMEA and Global Macro at Roubini Global Economics. "Even if there isn't actually a supply risk there could be a strong reaction."
What happens in the Suez Canal zone will be crucial. The 120-mile (190-kilometer) Suez Canal carries about 2.5 percent of world oil output. In the wake of president Hosni Mubarak's ouster on February 11, Egypt gave its green light on Friday for the Iranian warships to transit the canal into the Mediterranean.
The passage has been put back to Wednesday, a canal official said on Sunday, as Israel expressed its grave concern about the Mediterranean-bound vessels. Reportedly bound for Syria on a journey that would necessarily involve passing Israel, the patrol frigate Alvand and support ship Kharg would be the first Iranian warships through Suez since the 1979 Islamic revolution.
"The provocation by Iran is meant to get a response from Israel," said Michael Langford, Proprietary Trader at StreamTrading.com. "The goal is to raise tension with Israel to take focus away from dissatisfaction with the government and to unite the people behind a common enemy. It is a very smart strategy by the Iranians and will be interesting to see if Israel falls for it. I think Israel understands Iran's game, so nothing is going to come of this in terms of impact on markets."
Although it's not an oil producer, traders are monitoring tensions closely in Bahrain where the U.S. has important strategic interests, including the U.S. Navy's Fifth Fleet, which is tasked with patrolling oil shipping lanes and monitoring Iran.
Despite the Jasmine revolutions in Tunisia and Egypt and the popular uprisings triggered in other parts of the Arab world, there has yet to be any material impact to oil supply, said Linda Rafield, Senior Oil Analyst at Platts.
"The Middle East remains supportive, but until there is an actual disruption to supply, prices will remain range bound at higher levels than last year," she said. "I think WTI is forming a base here and is vulnerable to a price spike. I would actually rather buy WTI than Brent at the moment for all the ballyhoo about broken benchmarks. Brent could trade sideways while WTI painstakingly edged higher."
Her views are shared by Mike Harrowell, senior resource analyst at BBY, who told CNBC Monday that he expects oil to keep flowing out of the Middle East despite the unrest.(Listen to Harrowell's comments in full at 4:25 in the video on the left.)
U.S. crude's discount against Brent crude was at $12.04 during Asian trading hours Monday. At the close on Friday, the spread between the two benchmarks was at $12.81. Brent is increasingly being perceived as more indicative of a global benchmark over WTI crude futures in the U.S.
Critics of WTI as a global standard argue that the main delivery point for Nymex futures in Cushing, Oklahoma is too local, subject to distortions and not compatible with an internationally traded benchmark. (For more on this, please read Jegarajah's earlier post: Oil Markets Watch Brent-WTI Spread as Price Approaches $100.)
"We have only begun to see the results of contagion in the (Middle East and North Africa) region," said David Kotok, the co-founder and chairman of Cumberland Advisors. "It now reaches into the deeper zone of oil. Brent is reflective of the rising risk premium. In America, the WTI mispricing due to Cushing issues is distorting the impact."
Although the consensus view is for further building in the risk premium in oil prices, there are factors possibly mitigating the gains, JPMorgan noted.
"Despite the possibility of increasing volatility, seasonal demand in the Atlantic Basin seems to be ebbing at a faster rate than refinery capacity is withdrawn for spring maintenance judging by trends in product inventories," JPM's Lawrence Eagles said. Higher U.S. inventories should also cushion any supply shortfall, he added.
A big issue for the oil market is whether OPEC has sufficient spare capacity to bring to the market in the event of a material supply disruption. The International Energy Agency estimates OPEC's spare capacity fell in December below the 5 million barrels a day for the first time in two years.