Oil prices settled slightly lower Friday after a volatile day marked by a U.N. resolution to use force to stop Moammar Gadhafi's violent attacks on rebels followed by a Libyan announcement of a cease-fire in hostilities.
Benchmark West Texas Intermediate crude for April delivery fell 35 cents to settle at $101.07 per barrel. It rose as high as $103.66 earlier in the session as the U.S., the U.K. and France prepared for military action against Libya under a U.N. resolution. In London, Brent crude lost 88 cents to settle at $113.77 per barrel on the ICE Futures exchange.
Libya's Foreign Minister announced a cease-fire shortly after the U.N. voted to authorize a no-fly zone and "all necessary measures" to protect Libyan citizens from forces loyal to Gadhafi. There were reports that fighting continued outside the rebel stronghold of Benghazi and elsewhere. President Barack Obama said Friday afternoon that the U.S. intends to enforce the U.N. resolution, with military action if necessary.
Japan's struggle to stop the meltdown of a nuclear reactor damaged in last week's earthquake and tsunami injected more uncertainty into the markets on Friday.
Oil prices have surged as much as 27 percent in the past month as uprisings swept through North Africa and the Middle East. The region is home to OPEC heavyweights Saudi Arabia and Iran, and it produces 27 percent of the world's oil. In the past week prices have been pushed down by the expectation that Japan, the world's third-largest oil importer, initially would use less oil and gas because of damage to homes and factories. Analysts however believe Japan now will have to import more crude to cover power shortfalls from nuclear plant shutdowns.
Oil prices remain well above where they were before the Libya uprising began. The rebellion continues to cut off most of Libya's oil exports, which previously satisfied nearly 2 percent of world demand at 1.5 million barrels per day. Oil traders are also worried that any U.N. action, along with growing unrest in Bahrain and Yemen, will further erode trade relations between OPEC and the West.
The recent jump in oil has hit energy markets as the global economy gradually recovers from recession. Rising prices have helped keep U.S. gas pump prices at the highest levels ever for this time of year. Retail gasoline slipped less than a penny on Friday to a national average of $3.54 per gallon, according to AAA, Wright Express and Oil Price Information Service. That's still nearly 41 cents per gallon higher than a month ago and 74 cents more than the same time last year.
Moody's Investors Services said if oil stays above $100 per barrel, it will further weaken the global economic recovery. Moody's said oil could keep pushing airfares higher around the world, and food prices could rise as costs increase for fertilizers and fuel to run farm equipment and to transport produce. Automakers could see sales lag because of higher fuel prices.
The price rise will be an additional burden on Japan as it boosts imports while it recovers from the devastation of the earthquake and tsunami. Chevron already is shipping crude from Indonesia to Tokyo Electric Power Co., the country's biggest utility, to help with its energy needs. A Chevron spokesman wouldn't say how much was sent. And Royal Dutch Shell said it will provide more crude and liquefied natural gas (LNG) to Japan, both of which can run generators there.
Most of Japan's power is produced by coal-fired plants. It imports more coal than any country on earth, according to the U.S. Energy Department. Much of it comes from Australia.
Bob Ineson, a natural gas expert at IHS CERA, estimated that about 22 gigawatts of power is currently offline in Japan due to shutdowns at nuclear and coal-fired power plants. The International Energy Administration says utilities around Tokyo and just to the north, where the earthquake and tsunami hit, can generate around 105 gigawatts of power under normal conditions. The utilities have started rolling blackouts across those areas to cope with the shortfall.
Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said the international crises in Japan and Middle East-North Africa have totally rattled energy markets, and prices will continue to jerk up and down with every major headline.
"I've been trading oil commodities for 37 years and I've never seen such a vast array of items that this market has to digest each and every day," Ritterbusch said.
In other Nymex trading for April contracts, heating oil fell 4.06 cents to settle at $3.0243 per gallon and gasoline futures were flat, settling at $2.9494 per gallon. Natural gas added a penny to settle at $4.168 per 1,000 cubic feet.