* Saudi Arabia ups output by about 700,000 bpd
* Crude oil buyers cite quality issues
* Key Libyan oil terminals in Libya held by rebels
(Updates throughout)
By Ikuko Kurahone and Nia Williams
LONDON, Feb 25 (Reuters) - Oil retreated from highs on
Friday as a senior industry official said top exporter Saudi
Arabia had increased output to make up for any shortages as a
result of a disruption to oil supplies from Libya.
ICE Brent crude futures <LCOc1> was up 75 cents at $112.11 a
barrel by 1235 GMT, retreating from $113.91 earlier in the day.
It touched a two-and-half year high of $119.79 on Thursday.
U.S. crude futures <CLc1> was up 9 cents at $97.37, off
$99.20 earlier in the day. It hit $103.41 on Thursday, its
highest since September 2008.
Credit Agricole CIB global analyst Christophe Barret said
the initial panic in the oil market was receding.
"Yesterday we had a very large shock, it was the first time
we had real disruption to supply and real disruption to exports.
But this can be absorbed by regular market functioning which is
what is happening right now," Barret said.
"At the end of the chain you will have OPEC increasing
production but it's not economical for Italy to ask Saudi Arabia
directly for more oil."
Saudi Arabia had quietly increased its production to more
than 9 million barrels per day (bpd), an increase of more than
700,000 bpd, a senior industry source familiar with Saudi
production told Reuters on Friday.
"We have started producing over 9 million barrels per day.
We have a lot of production capacity," the source said.
Reuters estimated Saudi output at 8.3 million bpd in
January. OPEC's leading producer has come under pressure to lift
output to stem a spike in oil prices now at $112 a barrel.
In terms of the volume, the increase could compensate at
least a part of the loss of Libya's oil supply due to the civil
unrest in the North African country.
The estimates of shut-in volume varies. The International
Energy Agency said Libyan oil output to have been cut by 500,000
to 750,000 bpd due to the unrest, while Italian oil company ENI
<ENI.MI> said as much as 1.2 million bpd may be down.
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Graphics on crude prices, volumes and outlook:
http://link.reuters.com/pab38r
http://link.reuters.com/nab38r
Graphic on Brent backwardation:
http://graphics.thomsonreuters.com/AS/0810/NT_112502141533.jpg
Unrest in Mideast, N. Africa: []
Analysis on impact on Libyan oil sector: []
Interactive factbox http://link.reuters.com/puk87r
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DIFFERENT OIL GRADES
Libya is also an OPEC producer with normal output 1.6
million barrels per day. Saudi Arabia is the only oil producer
with significant spare capacity to meet global supply outage
volume such as the reduction in the flow from Libya.
Some industry officials and physical oil traders, however,
said the difference in qualities between Saudi and Libyan oils
may make it difficult to fill in the supply gap immediately.
Italian refiner Saras <SRS.MI> would look to alternative
crude from other countries.
"Saudi Arabia is not an alternative to Libya since its crude
is not sweet," Saras General Manager Dario Scaffardi told
Reuters on Friday.
Sweet crude is oil which has low sulphur content.
Key Libyan crude and oil product terminals east of the
capital are in the hands of rebels who have seized control from
leader Muammar Gaddafi. []
The unrest in Libya followed massive protests in Tunisia and
Egypt which led to the toppling of their long-time leaders and
has spread to other Middle East Gulf nations.
"When geopolitics in the Middle East are at play in the oil
markets, all conventional bets on the direction of oil prices
based on supply and demand fundamentals, or economic variables,
are off," analysts at BNP Paribas said in a research note.
(Additional reporting from Randy Fabi in Singapore; Editing by
James Jukwey)
