Oil prices dropped Thursday for the first time in nine days after the International Energy Agency said the rebellion in Libya may have cut oil production less than originally feared.
The International Energy Agency said that the violent uprising in Libya has forced oil companies to idle between 500,000 and 750,000 barrels per day of production, or less than 1 percent of global daily oil consumption. That's roughly half of what Italy's Eni, Libya's largest oil producer, estimated earlier Thursday.
IEA also said it can make up for any lost shipments from Libya by tapping into large surpluses held by member countries, which include the U.S., the United Kingdom, France and Germany. Altogether, member nations hold 1.6 billion barrels of emergency oil supplies, or enough crude to supply the group for 145 days.
IEA said it is in close contact with OPEC as well. Saudi Arabia, the most important member of the Organization of Petroleum Exporting Countries, said that it would increase production to make up for any shortfalls due to unrest in Libya, if necessary. The Saudis currently produce about 8.5 million barrels of oil a day and have the capacity to produce more than 12 million barrels a day.
President Barack Obama added further reassurance at an afternoon news conference, telling reporters that oil prices should eventually stabilize. "We think we'll be able to ride out the situation in Libya."
Benchmark West Texas Intermediate crude for April delivery fell 82 cents to settle at $97.28 on the New York Mercantile Exchange. The contract climbed as high as $103.41 per barrel earlier in the day.
Crude has soared 18 percent since Feb. 15 while anti-government protests swept through some countries in North Africa and the Middle East. Thursday's drop suggests that traders "are starting to recognize that prices have become overextended," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.
The recent surge in oil, called the "fear premium" by energy traders, will continue to flow through energy markets and could push retail gasoline prices as much as 30 to 40 cents higher than previously expected, experts said.
At the pump, gasoline prices rose more than 2 cents on Thursday to a new national average of $3.228 per gallon. A gallon of regular is 11.8 cents higher than it was a month ago and 55 cents more than the same time last year, according to AAA, Wright Express and Oil Price Information Service. Experts estimate that the national average could rise as high as $3.75 by spring.
Gasoline costs an average $3.60 per gallon in California and $3.44 per gallon in New York. The cheapest gas could be found in Wyoming, at an average of $2.998 per gallon.
Oil and gasoline prices will likely hold at elevated levels as long as Libya's future remains uncertain, said Michael Lynch, president of Strategic Energy & Economic Research. Prices should fall again once order is re-established. Libya relies on oil revenues and it will need to keep operations running no matter who is in charge, he said.
"It doesn't look like there's any real damage to Libya's oil fields," Lynch said. "So once there's a government in place everything could get back up and running within a few weeks."
The Energy Information Administration said Thursday that oil supplies in the U.S. grew last week by 800,000 barrels. That's less than analysts expected, but supplies are still well above average for this time of year. Gasoline supplies fell by 2.8 million barrels last week.
"It doesn't matter what the supply is here," analyst and trader Stephen Schork said. "America is in competition with Europe and Asia and everywhere else for oil. And when there's a shortage somewhere, it pushes prices everywhere else."
In other Nymex trading in March contracts, heating oil fell 2.34 cents to settle at $2.8932 per gallon and gasoline added 0.72 cent to settle at $2.8749 per gallon. Natural gas lost 6.4 cents to settle at $3.872 per 1,000 cubic feet.
In London, Brent crude added 11 cents to settle at $111.36 on the ICE Futures exchange. Brent prices almost reached $120 per barrel earlier in the day.