Oil prices soared to the highest level in more than two years as violence spiraled out of control in Libya and Moammar Gadhafi's grip weakened, threatening the country's sizable oil exports and raising concerns that violence would spread to other major oil producers in the Middle East.
Benchmark West Texas Intermediate jumped $6.73, nearly 7 percent, to $92 per barrel on the last trading day for the March contract on the New York Mercantile Exchange. Most of the trading already has switched to the April contract, which climbed $5.90, or 5.9 percent to $95.59 per barrel, the highest since Oct. 2, 2008.
Spanish oil company Repsol-YPF said Tuesday it suspended production in Libya. Other oil companies, including Italy's Eni, Royal Dutch Shell PLC, U.K.-based BP and Germany's Wintershall, started pulling out employees. Meanwhile, key Libyan officials resigned and air force pilots defected amid a bloody crackdown on the protests.
Libya holds the most oil reserves in Africa and is the 12th-largest oil exporter at 1.53 million barrels per day, according to the Energy Information Administration.
Analysts said the world's economy could function without Libya's exports, which provide about 2 percent of world oil consumption. The main concern stalking markets is that revolts in the Middle East and North Africa will spread to OPEC heavyweights, particularly Iran, the group's second-largest producer.
"The worry is about what's next. What if protests persist in Iran and things get out of hand?" said Victor Shum, an energy analyst at Purvin and Gertz in Singapore.
In Iran, government opposition groups this week held their largest protests in more than a year, resulting in two deaths, though the demonstrations have failed to gain the momentum seen in North Africa.
Two Iranian naval vessels entered the Suez Canal on Tuesday en route to a training mission in Syria, officials said, the first time that Tehran has sent military ships through the strategic waterway since the 1979 Islamic Revolution.
Brent crude, which is delivered around the world and is considered a better reflection of global demand than WTI, added $1.26 at $107 per barrel on the ICE Futures Exchange. Brent is considered to be more sensitive to possible disruptions of Middle East oil supplies, while large U.S. stockpiles of crude are one of the reasons for the lower WTI prices.
Looking ahead, there are also knock-on effects from high oil prices. A jump in energy costs could hurt consumer spending and stymie a fragile recovery in developed countries.
The crisis in the Middle East and North Africa — which has brought down governments in Tunisia and Egypt and sparked protests in Yemen, Bahrain, Iran, Morocco and Jordan — has added about $10 to the price of crude, according to Capital Economics.
"An additional $10 on the price of oil is not insignificant, particularly for weaker economies in Europe facing a major fiscal squeeze," Capital Economics said in a report. "Given the pace at which events are unfolding, it would be daft to rule out a spike to $140 or beyond in the coming weeks, if the unrest disrupts output from the larger oil producers."
The pace of trading was expected to increase Tuesday as many U.S. traders come back from a long three-day holiday weekend.
In other Nymex trading in March contracts, heating oil rose 10 cents to $2.83 a gallon and gasoline gained 10.1 cents to $2.65 a gallon. Natural gas futures were unchanged at $3.878 per 1,000 cubic feet.
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