Escalating violence and signs of disruptions to oil supplies in Libya pushed crude prices to their highest level in 2½ years.
Several oil producers said they had suspended or shut down some operations and pulled out workers from the oil-rich North African country, where unrest worsened Tuesday. Crude prices rose despite assurances from other oil-producing states that they would step in to address any supply disruptions.
“The markets are just concerned that not only Libya but other countries could be affected by the contagion and unrest,” said Tom Bentz, oil analyst at BNP Paribas. “It’s hard to say how high we could go.”
Light, sweet crude for March delivery soared $7.37, or 8.6%, from Friday to settle at $93.57 a barrel on the New York Mercantile Exchange, the highest front-month settlement since Oct. 3, 2008. With the expiration of the March contract, the more heavily traded April contract settled up $5.71, or 6.4%, at $95.42 a barrel.
Nymex trading was closed Monday for the Presidents Day holiday. Brent crude for April delivery on the ICE futures exchange, which was open for trading Monday, rose just four cents to settle at $105.78 a barrel, its highest settlement since Sept. 22, 2008. Prices for the front-month contract have surged 4.7% this month.
The closely watched OPEC basket of crudes rose to $100.59 a barrel, marking the first time the basket surpassed $100 a barrel since Sept. 8, 2008.
Oil’s sharp rally, spurred by events in the Middle East and North Africa, has raised concerns that the U.S. economic recovery could be undermined. Higher oil prices means consumers have to spend more money on gasoline and home heating and have less to spend on other goods.
Italian oil producer Eni SpA, which has the largest operation in Libya among foreign producers, said Tuesday it suspended some production in Libya and shut down the Greenstream pipeline, which supplies about 10% of Italy’s natural gas needs. Eni declined to name the other facilities suspended.
Spain’s Repsol YPF, meanwhile, said it was suspending oil and gas operations in Libya. France’s Total SA said it began to suspend some production in Libya, while the U.K. oil company BP PLC suspended preparations to drill in the Libyan desert and Norway’s Statoil ASA closed its office and pulled out expatriate workers.
Libya is the first major oil producer to see its supplies disrupted by the mass protests that have been sweeping the Middle East and North Africa. The country is the eighth-largest oil producer in the Organization of Petroleum Exporting countries, according to the International Energy Agency, and has the largest crude reserves in Africa.
The country’s leader, Moammar Gadhafi, meanwhile, dug in against large and increasingly violent protests. Swaths of the eastern part of the country appeared to fall under the control of anti-Gadhafi opponents. Oil companies in Eastern Libya were functioning under the control of pro-democracy rebels and had split with Gadhafi, local oil officials said. Libya’s oil is mainly sold to its Oilinvest marketing network in Europe, with the Italy being the biggest buyer, according to the IEA. France, Germany and Spain are also large importers of the country’s oil.
Leading OPEC producers said Tuesday they would tap spare capacity to make up for any disruptions in supply of Libyan crude. The head of the International Energy Agency said Tuesday any small disruption in crude production could cause a spike in prices, but he added that IEA countries “have strategic stockpiles of 1.6 billion barrels and I know that OPEC has a good spare capacity and they need to work.”
However, Libya produces a high-quality grade of oil that would be difficult to replace by OPEC spare production, said Andy Lipow, head of the Houston oil consultancy Lipow Oil Associates. He expressed worries about a “run on light, sweet crude” in the event of a major supply disruption.
“If we were to lose that light, sweet crude [from Libya], it’s not like we could make up for that in OPEC spare capacity because OPEC’s spare capacity is sour crude,” he said during a conference call.
Front-month March reformulated gasoline blendstock, or RBOB, rose 5.08 cents, or 2%, to settle at $2.6021 a gallon. March heating oil gained 7.95 cents, or 2.9%, at $2.7924 a gallon.