updated 3/10/2011 11:35:08 AM ET 2011-03-10T16:35:08

Oil prices tumbled nearly 3 percent Thursday before recovering on reports that Saudi police opened fire at a rally in the eastern part of the country.

Benchmark West Texas Intermediate for April delivery fell below $101 on weak economic news from the U.S. and China, but rallied back quickly after the report from Saudi Arabia to be down just 67 cents at $103.73 per barrel in afternoon trading on the New York Mercantile Exchange.

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Oil fell as low as $100.62 Thursday morning, the lowest price in a week. The reaction to the Saudi development shows how sensitive the market is at the moment to news from the Middle East. Oil prices soared above $100 per barrel last week as an uprising in Libya essentially shut down the country's exports.

Earlier in the day, economists were warning that the recent surge in fuel prices will eventually slow economic growth.

The U.S. is consuming more gasoline than a year ago, even though the price has jumped 50 cents per gallon in just three months. But consultants who track spending on gasoline say Americans may finally be pulling back.

Motorists have started to spend less on gasoline than they were spending at the same time last year, according to SpendingPulse, a research firm that tracks retail spending. Consumers were buying more in February, and that trend was supposed to continue toward the summer.

The rapid increase in gas prices "blew through" everyone's comfort level, SpendingPulse Vice President Michael McNamara said. It's unclear how long this will last, but McNamara called it the first real sign that consumers are rearranging their habits to conserve gas.

Economist Michael Lynch said consumers will cut back on driving even more in coming months if oil remains above $100 per barrel. "We're past the point of, 'Oh, it's only going to be up for a few days,'" Lynch said. "I think people are already starting to change their behavior, and they're modifying their vacation plans as we get closer to the summer."

The economic news Thursday helped fuel the earlier oil sell-off. China, which is expected to drive oil demand for years to come, reported overnight that surging oil and commodity prices produced a surprising trade deficit of $7.3 billion for February. And the U.S. Labor Department reported that the number of people seeking unemployment benefits rose last week.

The U.S. dollar also gained against other major currencies. Oil, which is priced in dollars, tends to fall as the greenback rises and makes barrels more expensive for buyers holding foreign currency.

"When you've risen as quickly as we have, there's always going to be a risk of a big drop when you hear stories that say the world isn't as wonderful as you think," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

Life Inc.: Consumers bracing for $4-plus gas

Oil company shares dropped as oil fell. Exxon Mobil Corp., Chevron Corp., BP, Total, ConocoPhillips, Occidental Petroleum Corp., and Royal Dutch Shell all fell at least 2 percent.

The oil industry has tried to ease concerns recently, saying the rise in prices was mostly due to speculation and there's still plenty of crude to meet world demand. But investors continue to worry about future supplies. Although Saudi Arabia and other OPEC members have said they will cover any shortfall from Libya, the wave of unrest in North Africa and the Middle East will make it harder to crank up production if another crisis affects shipments elsewhere, traders said.

Natural gas fell 9.8 cents to $3.832 per 1,000 cubic feet after the government said U.S. supplies are still higher than last year despite a drop in price. U.S. inventories have been growing as new technologies allow companies to tap underground shale deposits.

In other Nymex trading for April contracts, heating oil lost about 1 cent to $3.062 per gallon and gasoline fell less than a penny to $3.0284 per gallon.

In London, Brent crude lost 45 cents at $115.49 per barrel.

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Explainer: Overview of Libya's oil resources

  • Image: A Libyan oil worker, works at a refinery inside the Brega oil complex

    OPEC member Libya is the 17th largest producer in the world, third largest producer in Africa and holds the continent's largest crude oil reserves. It normally pumps around 1.6 million bpd, 85 percent of which is exported to Europe and its output is equivalent to about 2 percent of global oil consumption.

  • Libya's place in the oil producing world

    How the country measures up in crude supplies and production.

  • Exports

    Before the war, Libya was a net exporter with domestic consumption estimated at only around 270,000 bpd.

    Europe was most affected by Libyan oil export disruptions. About 28 percent of Libya's oil went to Italy, 10 percent to Germany, 11 percent to China and France and 3 percent to the United States.

    Libyan oil accounted for about 23 percent of Ireland's oil and about 22 percent of Italy's, according to the IEA.

    Around 13 percent went east of the Suez Canal to Asia.

    The shortfall from the loss of Libyan output was covered by alternative sources such as Nigeria and Azerbaijan, which produce similar light crude oils to Libyan oil.

    Saudi Arabia also brought some it its spare capacity online, according to Saudi sources. The kingdom promised to fill any supply gap caused by the unrest in Libya although it produces heavier crude with higher sulfur content than Libya.

  • Infrastructure


    Oil fields
    Most of Libya's oil fields are located in and around the Sirte Basin, in the northeastern part of the country, which contains around 80 percent of the country's proven reserves.

    Other key areas include the Ghadames Basin, about 240 miles south of Tripoli and Cyrenaica Basin in the northeast and the Murzuq oil field in the desert in the south of the country.

    Libya has five domestic refineries with a combined capacity of 378,000 barrels a day:

    Azzawiya Oil Refining Co
    Sarir Refining
    Sirte Oil Co
    Tobruk Refining
    Ras Lanuf Oil & Gas Processing Co

    Libya exported various grades of light crude from six major terminals, five of which are located in the eastern part of the country, where protests erupted near the second city of Benghazi.

    Following are the eastern terminals with pre-war loading volumes in January, 2011 provided by the IEA.

    Es Sider 447,000 barrels per day
    Marsa El Brega 51,000 bpd
    Ras Lanuf 195,000 bpd
    Tobruk 51,000 bpd
    Zueitina 214,000 bpd
    Zawiyah 199,000 bpd (January exports)
    Oother unspecified terminals 333,000 bpd

  • Companies

    Image: Libyan oil worker, works at a refinery inside the Brega oil complex

    Libya's state company
    Under the Gaddafi regime, Libya’s oil industry was run by the state-owned National Oil Corporation (NOC), which was responsible for managing exploration and production sharing agreements with international oil companies. Along with smaller subsidiary companies, the NOC accounted for around 50 percent of the country's oil output.

    Foreign players
    Major oil companies operating in Libya include:

    BP (Great Britain)
    ConocoPhillips (United States)
    Eni (Italy)
    ExxonMobil (United States)
    Hess Corp (United States)
    Marathon (United States)
    Occidental Petroleum (United States)
    OMV (Austria)
    Repsol (Spain)
    Shell (United States)
    Statoil (Norway)
    Wintershall, a unit of BASF (Germany)

Photos: Gas Turmoil

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  1. (Mike Keefe / Denver Post, Back to slideshow navigation
  2. (Joe Heller / Green Bay Press Gazette, Back to slideshow navigation
  3. (Joe Heller / Green Bay Press Gazette, Back to slideshow navigation
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  5. (Nate Beeler / The Washington Examiner, Back to slideshow navigation
  6. (R.J. Matson / St. Louis Post-Dispatch, Back to slideshow navigation
  7. (John Darkow / Columbia Daily Tribune, Back to slideshow navigation
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  9. (Patrick Corrigan / Toronto Star, Back to slideshow navigation
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