Oil resumes surge, keeps stocks under check

Oil resumed its surge on Friday, as political tension in North Africa showed little signs of abating and stock prices were checked on fears that runaway oil prices will constrain global growth.

Brent oil traded higher, despite assurances by top oil exporter Saudi Arabia that it would step in to fill any shortfall due to supply disruptions from oil-rich Libya. Analysts predicted that elevated oil prices could trigger more selling in stocks and other risky assets.

European stocks climbed, taking a breather after a week-long retreat, although sentiment was fragile. The FTSEurofirst 300 .FTEU3 index of top European shares was up 0.4 percent at 1,150.41 points, having lost 3.5 percent over the past week.

“The Libyan crisis really brought back the geopolitical risks at the forefront of investors’ minds,” said David Thebault, head of quantitative sales trading, at Global Equities in Paris. “That being said, this week’s pull-back (in stock prices) has been serious and we’re getting close to a floor here.”

Japan’s Nikkei average .N225 rose 0.7 percent, its first gain in four days, while world equities measured by the MSCI All-Country World Index .MIWD00000PUS rose 0.35 percent, although it was off its 30-month high hit earlier this week.

Even if oil markets stabilize, broader sentiment could remain cautious as high fuel prices would add to inflationary pressures and crimp consumer demand. That could threaten growth in Asian economies, the drivers to a global recovery since the 2008 financial crisis hit output worldwide.

Since the Libyan crisis erupted earlier this month, some of the worst performing markets within Asia are India, South Korea and Taiwan due to their higher dependency on oil imports, Brown Brothers Harriman said.

Analysts reckon the degree of vulnerability for G-10 oil importers is far less than that found in emerging economies.

“Our own analysis indicates that net oil imports for many emerging economies in Asia are close to or greater than 5 percent of GDP,” said Andrew Cox, G-10 strategist at Citi.

OIL’S FIRM BIAS

Brent crude oil futures rose $1.45 to $112.81 per barrel, while U.S. crude rose to $98 as Libya output cuts weighed. Key Libyan oil terminals are under rebel control while Muammar Gaddafi’s forces have fought back against the rebellion.

Estimates varied on how much of Libya’s production is down with the International Energy Agency pegging the volume shut at 500,000 to 750,000 bpd. Italian oil company ENI (ENI.MI) said as much as 1.2 million bpd may be down.

Although oil prices have come off 2-1/2 year highs, they are still up 12 percent in the past three sessions alone, raising concerns about a wider slowdown in global growth and lending support to safe-haven assets such as gold, U.S. Treasuries and, of late, the Swiss franc.

The dollar stayed near a record low against the franc on Friday with some analysts saying that higher oil prices are seen to have a bigger impact on the U.S. economy given its reliance on consumer spending for growth.

It has fallen nearly 4.8 percent against the franc in the last two weeks, its worst showing since June.