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Mary Altaffer  /  AP
Traders work in the crude oil options pit at the New York Mercantile Exchange Tuesday. The price of crude oil soared to its highest level in more than two years amid fears that violence in Libya will spread to other oil-producing heavyweights like Iran.
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updated 2/22/2011 6:36:45 PM ET 2011-02-22T23:36:45

Oil prices soared to the highest level in more than two years as Libyan leader Moammar Gadhafi urged his supporters to attack protesters who are violently challenging his 42-year rule.

Only a small part of Libya's oil production appeared to be affected, though analysts fear that similar revolts will spread to OPEC heavyweights like Iran.

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Benchmark West Texas Intermediate for April delivery jumped $5.71, or 6.4 percent, to settle at $95.42 per barrel on the New York Mercantile Exchange. Oil hasn't been that high since it settled at $97.92 on Oct. 1, 2008.

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.

Any production losses in Libya could be quickly absorbed by other countries like Saudi Arabia. The official Saudi Press Agency quoted Saudi Arabia's oil minister Ali Naimi as saying that Saudi's production capacity of 12.5 million barrels per day can help "compensate for any shortage in international supplies." Saudi Arabia currently produces around 8 million barrels per day.

The International Energy Agency said in a statement on its website that it is ready "to make oil available to the market in the event of a major supply disruption." The Wall Street Journal reports that the IEA plans to meet this week to discuss the possible release of strategic stockpiles, if necessary.

The main concern stalking markets is that revolts in the Middle East and North Africa will spread to other members of the Organization of Petroleum Exporting Countries, particularly Iran, the group's second-largest producer.

Energy consultant Jim Ritterbusch said a "fear premium" has added about $10 per barrel to the price of oil. That means prices could tumble once the region settles down. "But that doesn't look like it's going to happen anytime soon, he said."

Eni, Libya's biggest oil producer, idled operations that produce one-quarter of the country's output at 244,000 barrels of oil and gas per day. Spain's Repsol-YPF, which also suspended production Tuesday, produces about 34,777 barrels a day. Austrian oil company OMV, which produces about 33,000 barrels a day said it will reduce production because of the unrest.

BP evacuated 70 people from Libya, including 40 workers and their families. BP isn't producing oil in Libya, but it has been working on an exploration project. BP has 140 employees at its Libyan operation.

Other oil companies, including Royal Dutch Shell PLC, Marathon Oil Co. and Germany's Wintershall, also started pulling out employees. Meanwhile, key Libyan officials resigned and air force pilots defected amid a bloody crackdown on the protests.

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At least 300 people have been killed in the uprising, according to New York-based Human Rights Watch. As units of Gadhafi's army defected, protesters said they were watching several oil fields and pipelines, hoping to protect them against damage or vandalism.

At least three ports that handle oil shipments have been closed, according to one resident, Ahmed al-Zawi.

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 seen as a better reflection of global demand than WTI, added 4 cents to settle at $105.78 per barrel on the ICE Futures exchange. Brent is considered to be more susceptible to disruptions in Middle East oil supplies, while large U.S. stockpiles of crude have helped keep WTI prices lower.

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 — will put added pressure on weaker economies, especially those in Europe, according to Capital Economics.

Story: Dow ends off 175-plus as Libya rocks markets

In the U.S., a run-up in fuel costs could force businesses and consumers to spend less on other things, slowing both the economy and the pace of hiring.

The U.S. economy picked up momentum at the end of 2010 and is probably growing at about a 3.2 percent annual rate or more in the first three months of the year. A $10 increase in the price of oil shaves off roughly 0.4 percentage point from economic growth, according to economist Brian Bethune at IHS Global Insight. The economy could be pushed into a recession if oil prices were to skyrocket to $150 or $160 a barrel, Bethune and other economists say.

In other Nymex trading in March contracts, heating oil rose 7.75 cents to settle at $2.8035 a gallon and gasoline gained 5.63 cents to settle at $2.7464 a gallon. Natural gas futures lost about a penny to settle at $3.867 per 1,000 cubic feet.

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Video: Unrest pushes oil prices higher

  1. Closed captioning of: Unrest pushes oil prices higher

    >>> stocks are falling and oil prices skyrocketing because of the violence. analysts say if the unrest keeps spreading be libya could be forced to cut oil production , and we could see oil prices hit $5 a gallon this summer. the dow down significantly 176. s&p down. nasdaq down. joining me with insight is a commodities analyst and president of cameron hanover. thank you, peter, for joining us.

    >> thank you.

    >> tell me the scenario in which we would see $5 a gallon here in the states because of this unrest.

    >> it would have to involve more than libya . libya produces 1.6 million barrels a day, that's about 2% of the world's use of oil, about 88 million barrels a day. but what concerns so many is, if you look at a map, you've got libbia, you've got egypt, you've got yemen, bahrain, you've got iran, iraq, and in the heart of that is saudi arabia that produces 8.4 million barrels a day and has another 4 million barrels in capacity. the saudis have said they'll make up for any lost libyan oil, and libya has declared that oil is no longer contractually obliged to go anywhere. some of it still is, but a lot of it is up in the air and might not get anywhere. but really, for us to see $5 a gallon gasoline we'd have to either have the uae or kuwait to have their oil lost in addition to libya . but if you bring in saudi arabia , then $5 isn't what we're talking. then we're talking about $6 if we lose saudi arabia . if we were to lose the uae, kuwait, saudi arabia , and have iran and iraq's oil kind of iffy that would be 20% of the world's oil supply every day, up to 25% if you include all of saudi arabia 's capacity. so we're talking about potentially, if it spreads, a very, very dangerous situation.

    >> according the " usa today " they have a quote from the chief analyst at the oil price information service . gas prices rose to $3.25 within a few days, 2.5% above of what we saw on tuesday which was 3.17. that is increase of 2.5% because of the direct unrest in libya ?

    >> i believe so. we're going to see an increase in prices when we change specifications next week, when we go from march to -- when we go to march to april in the contracts at the end of february, march 1st . we'll see a 15 cent jump anywhere. 25 out of the last 26 years we've seen gasoline prices increase from march to may anyway because refineries are going through maintenance. so if we have this on top of it, then we could see gasoline prices move even more. but the way it stands right now, we are looking already for 20 to 25 cents a gallon higher by next week just with what we've got on the board right now.

    >> peter, thanks for the insight.

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