Oil at 4-month high on fighting in Yemen
Traders fear supply disruptions as Yemen borders on Suez canal
Oil was trading at four-month highs on Monday as Saudi Arabia expanded its military campaign in Yemen.
West Texas Intermediate crude, the North American contract, surged to $57.89 US a barrel Monday morning, before sinking back to $56.78 at the close of trading. That is near its level in December and well above the low near $42 it hit last month.
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Brent crude, the most common international contract, was at $64.68 US and Western Canada Select, a Canadian contract, was trading at $45.49 US.
Oil has been rising for the past four weeks despite the continued glut of supply compared to demand.
Saudi Arabia launched more airstrikes on Houthi rebels in Yemen, leading to concern that crude supplies from the Middle East might be disrupted because of the unrest.
Several people were killed in the southern port city of Aden and Saudi airstrikes hit a weapons depot in the rebel-held capital, officials said.
While Yemen is a very small oil producer, it is close to the Suez canal, a key shipping route for oil.
There were also disruptions because of labour strife in Libya, which controls Africa's biggest crude reserves.
Oil glut still with us
However, figures from the U.S. Energy Information Agency last week showed the oil glut in North America persists, with storage tanks at record highs.
Most U.S. oil gets stored at Cushing, Oklahoma, in tanks that are now about 80 per cent full.
Analysts are also pointing to near capacity conditions at a second storage area in Midland, Texas, where oil from West Texas is awaiting transport to the Gulf Coast.
On the positive side, the number of rigs in operation dropped again, according to data from Baker Hughes, with issues a report on rig activity every Friday. The number of U.S. rigs is now 703, the lowest number since 2010.
However, Morgan Stanley predicted on Monday that the decline in drilling rigs in the U.S. could bottom out in May. Operators are already looking at reviving rigs because of a rise in prices in the past month, Morgan Stanley analysts said.
Canada already had flat growth in the first quarter of the year because of the impact of low oil prices and CIBC is now predicting the pain will continue into the spring and summer.
CIBC economist Andrew Grantham says the bank believes "a lot of the weakness in energy investment would show up in Q2/Q3 rather than in the first quarter." CIBC has degraded its forecast for 2015 GDP for Canada to 1.7 per cent.