Oil prices settled above $102 per barrel for the first time since September of 2008 as fighting escalated in Libya and petroleum demand grew in the U.S.
Libya, a major oil exporter to Europe, has been embroiled in an uprising that has shut down oil production in many parts of the country. Forces loyal to Libyan leader Moammar Gadhafi used airstrikes in a battle against protesters for control of a key oil installation in the eastern half of the country.
Analysts are concerned that the rebellion will endanger Libya's oil fields, which produce 1.6 million barrels per day. That's only about 2 percent of global demand, but experts say the disruption is putting pressure on world supplies at a time when demand is picking up.
Oil prices have soared nearly $17 per barrel since the Libyan uprising began in mid-February. Retail gasoline prices in the U.S. gained more than 25 cents per gallon in that time. American motorists are now paying $94.9 million more per day to use the same amount of gasoline.
As chaos spreads through Libya, experts have struggled to get an accurate account of the impact of the country's oil production.
A Libyan oil minister said the production in the east had declined 50 percent, though international observers say the drop is higher. The International Energy Agency said Wednesday that between 850,000 and 1 million barrels per day were shut in. Its previous estimate was between 500,000 and 750,000 barrels per day.
Whatever the number, not much will be moving out of the country, analysts said. Oil tankers that have made it to Libyan ports may simply be taking whatever excess supplies are available since the uprising began, Houston-based oil analyst Andrew Lipow said. Libya's oil fields probably will be in danger for months with nobody in clear control of the country, Barclays Capital analyst Helima Croft said.
"They have a highly fractured army, so you could see security problems persisting for weeks or months," Croft said. "This could get really messy."
It's also unclear which companies would be able to do business with Libya's national oil company in the wake of sanctions imposed by the U.S., the United Nations and the European Union. Occidental Petroleum Corp., which has interests in Libyan oil fields that produced 13,000 barrels per day for the company last year, is unsure how the restrictions will affect its business. The Los Angeles company stopped doing business in Libya from 1986 to 2005 because of prior sanctions,
"We're still evaluating the current U.S. position," spokesman Richard Kline said.
In the U.S., the government reported Wednesday that petroleum demand continues to rise from last year, and oil and gasoline supplies both dropped unexpectedly last week.
Benchmark West Texas Intermediate for April delivery added $2.60, or 2.6 percent, to settle at $102.23 per barrel, the highest settlement since Sept. 26, 2008.
In London, Brent crude added 93 cents to settle at $116.35 per barrel on the ICE Futures Exchange.
Since demonstrations spread to Libya, WTI has risen about 19 percent, Brent about 13 percent. The rise in oil prices continues to push U.S. gas prices to new highs for this time of year. Pump prices rose more than a penny overnight to almost $3.39 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 28.8 cents higher than a month ago and 68.4 cents higher than the same time last year.
Gasoline prices are expected keep rising, though more gradually, this spring, topping out at between $3.50 and $3.75 per gallon.
Meanwhile, the Energy Information Administration reported that oil supplies in the U.S. fell by 400,000 barrels and gasoline inventories dropped by 3.6 million barrels last week. Supplies dropped as refineries flushed out winter fuel blends in preparation for new formulas required during the summer. Despite the drop, the U.S. is still sitting on a relatively large surplus in both crude and gasoline when compared with previous years.
In other Nymex trading, natural gas for April delivery fell 5.5 cents to settle at $3.818 per 1,000 cubic feet. Natural gas prices typically fall at this time of year as the weather warms, and huge production increases in North America have helped push prices about 21 percent lower year-over-year.
Gasoline for April delivery added 4.61 cents to settle at $3.0295 per gallon. Gasoline futures also have been tugged higher by the unrest in the Middle East, rising 12 percent since the beginning of February.
Heating oil for April delivery added 3.42 cents to settle at $3.0577 per gallon.