Oil rises as Yemen unrest escalates, dollar falls

NEW YORK: Oil prices rose on Tuesday as unrest in Yemen threatened to crimp energy exports from the Gulf region and potentially spill over into neighboring Saudi Arabia.

French oil giant Total warned buyers of liquefied natural gas from its Yemen LNG project that shipments from the country could face cuts due to escalating political unrest, although they remain normal for now.

Thousands of Yemeni protesters took to the streets on Tuesday, clamoring for President Ali Abdullah Saleh to step down. Several top officials have already abandoned Saleh, who warned that his country would descend into civil war if he were forced to quit.

Yemen, which borders top oil exporter Saudi Arabia to the north, pumps around 290,000 barrels per day of oil, largely for export, and ships 0.9 billion cubic feet per day of LNG, about 9 percent as much as top LNG exporter Qatar.

“The situation in the Middle East is still very bullish for oil,” said Phil Flynn, analyst at PFGBEST Research in Chicago.

“The unrest spreading (there) on top of the conflict in Libya is still the market focus.”

In Libya, a bloody standoff between the Muammar Qadhafi regime and rebels in control of the country’s east has already slashed oil production from the OPEC country by around 75 per cent, to below 400,000 bpd.

Brent crude for May rose 74 cents to settle at $115.70 a barrel. US crude futures for April rose $1.67 to settle at $104 a barrel in light volume on the contract’s expiration day.

The more active May contract settled up $1.88 a barrel at $104.97.

US crude futures broke above a key technical resistance level, clearing the way for a run higher, as momentum builds for a challenge of the year high near $107 a barrel.

Oil rose even as stock markets fell, snapping a three-day winning streak, with trading volumes across US equities markets hitting a 2011 low.

US oil futures handily outpaced European Brent, narrowing the transatlantic spread.

“Generally, Middle East tensions would strengthen Brent,” said Bill O’Grady at Confluence Investment Management in St.Louis. “But the US expiration trade has become really choppy, with a lot of financial players trying to figure out how to play this market and maybe some short-covering going on.”