Oil Near $96 As Libya Teeters on Edge of Civil War

February 23, 2011 - 5:55 AM

oil prices

Traders work the crude oil options pit at the New York Mercantile Exchange on Tuesday, Feb. 22, 2011 in New York. (AP Photo/Mary Altaffer)

Singapore (AP) - Oil prices rose to fresh two-year highs near $96 a barrel in Asia on Wednesday amid trader concern a violent power struggle in Libya could disrupt crude supplies.

Benchmark crude for April delivery was up 47 cents at $95.89 a barrel -- the highest since October 2008 -- at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract jumped $5.71, or 6.4 percent, to settle at $95.42 on Tuesday.

In London, Brent crude for April delivery gained $1.08 to $106.86 a barrel on the ICE Futures exchange.

Libyan leader Moammar Gadhafi on Tuesday called on supporters to attack anti-government demonstrators as protesters backed by defecting army units claimed control over almost the entire eastern half of the country, including several oil-producing areas.

Nearly 300 people have been killed so far in the rebellion, according to a partial count by the New York-based Human Rights Watch.

Libya holds the most oil reserves in Africa and is the world's 15th-largest crude exporter at 1.2 million barrels per day, according to the Energy Information Administration. As the Libyan government cracked down on protesters, Western oil companies including Eni and Repsol-YPF temporarily suspended oil production in the country. BP has started evacuating workers.

"The protests in Libya are the first to meaningfully put oil supplies at risk," Goldman Sachs said in a report.

Goldman, which is forecasting crude to rise to $103 within 12 months, said recent violent protests in Bahrain show that wealthy oil-rich Gulf states are also vulnerable to political upheaval.

"These recent developments in Libya and Bahrain increase the risks of major supply disruptions," it said.

The crisis in the Middle East and North Africa began in January with the overthrow of Tunisia ruler Ben Ali, spread to Egypt and the resignation of President Hosni Mubarak and has sparked protests in Yemen, Bahrain, Iran, Algeria, Morocco and Jordan.

Traders are watching closely protests in Iran, OPEC's second largest producer, and for signs of any unrest in Saudi Arabia, the world's biggest crude exporter. Analysts fear that further oil price spikes could fuel inflation, undermining consumer spending and global economic growth.

"Saudi Arabia, itself an authoritarian state, now finds itself surrounded by countries in the throes of revolution," energy analyst Richard Soultanian of NUS Consulting said.

"Should the current situation continue to deteriorate, it has the potential to not only roil the energy markets but also upend the nascent and accelerated recoveries in developed and emerging markets."

Some observers expect a return to the sharp fluctuations of oil prices seen in the 1970s, when an embargo led by the Organization of Petroleum Exporting Countries caused gasoline shortages in the U.S.

"Today's situation is reminiscent of the 1970s," said Anthony Michael Sabino, a professor at St. John's University's college of business. "The price of oil will now jump in direct relation to one of its oldest barometers -- political tension in the Middle East."

"Expect nothing but a roller coaster ride for a few weeks, if not months."

In other Nymex trading in March contracts, heating oil rose 1.2 cents to $2.80 a gallon and gasoline gained 2.6 cents to $2.62 a gallon. Natural gas futures were down 2.8 cents at $3.89 per 1,000 cubic feet.