SINGAPORE - U.S. crude futures climbed to a 2-1/2-year peak on Wednesday on concern that unrest in Libya could spread to other top oil producers in the region and cut more output.
Violent clashes in Libya have resulted in at least three oil companies halting output in Africa's third-largest producer, which pumps 1.6 million barrels per day, or nearly 2 percent of global supply.
The disruptions mark the first reduction in oil supply stemming from a wave of protests that have swept through the oil-producing Middle East and North Africa. Investors fear for the potential impact on the flow of oil from top exporter Saudi Arabia if it suffers similar unrest.
U.S. crude rose as high as $96.08 a barrel, the highest level since October 2008. By 0709 GMT, the April contract had trimmed gains to trade at $95.72, up 30 cents on the day.
Brent crude rose 84 cents to $106.62 a barrel. On Monday, Brent hit a 2-1/2-year high of $108.70.
"Even if Libya completely shuts down, there isn't a supply issue. But the (U.S. crude) could go to $100, given the potential for this contagion to spread to Saudi Arabia," said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.
To date, protests in Saudi have been low key. But majority Shi'ites in neighboring Bahrain are protesting against the Sunni-led government and there is concern this could spill over to the Shi'ite minority living in Saudi Arabia's oil-producing eastern province.
"The importance of Bahrain is perhaps being underplayed currently. While not a major oil producer, Bahrain's impact on the oil market reverberates through its importance in Saudi Arabia," said Barclays Capital analysts Helima Croft and Amrita Sen in a research note.
Natural gas supplies have also felt the impact of Libya's unrest, as a pipeline carrying Libyan gas to Italy has been closed. Libyan leader Muammar Gaddafi has refused to step aside despite the growing revolt and threatened tougher action against protesters in a defiant speech on Tuesday.
International Energy Agency executive director Nobuo Tanaka said that sustained oil prices over $100 per barrel for the rest of the year could tip the global economy back into a repeat of the 2008 economic crisis.
"We are very much concerned about the situation, it's a risk to the stable supply of oil," Tanaka told Reuters at the International Energy Forum in Riyadh on Tuesday.
Brent crude has risen around 12.5 percent so far this year. U.S. crude is up just under 5 percent on the year, but is over $50 below its 2008 high of $147.27.
"Given the speed at which events are unfolding, we do not rule out a further spike of $20/bbl or beyond in the coming weeks if the unrest disrupts output," ANZ commodities analysts Serene Lim and Mark Pervan wrote in report on Wednesday.
Brent oil could revisit its Monday's high of $108.70 a barrel, while U.S. crude could head to $97.33 a barrel within 24 hours, according to Reuters market analyst Wang Tao.
No more crude from Saudi Arabia
Top exporter Saudi Arabia on Tuesday stopped short of pumping more oil to calm markets, telling visiting consumer nations prices were driven by fear.
The kingdom could ramp up its oil production enough within one month to replace all of Libya's crude exports if growing strife in the African nation cuts off its oil shipments, a senior U.S. government energy official said on Tuesday.
Saudi Arabia supplies around 10 percent of the world's oil, but also holds most of the world's spare capacity. It is the only producer able to respond quickly with large volumes of oil to compensate for a serious supply outage.
IEA member states would consider releasing oil from their emergency stocks if supplies were disrupted as a result of continuing turmoil in the Middle East, the agency's chief economist Fatih Birol said on Tuesday.
The IEA is adviser to 28 industrialized nations on energy policy.
A rise in Japanese crude oil stocks and an expected increase in U.S. inventories could also ease supply concerns, analysts said.
(Editing by Simon Webb)
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