OIL prices hit their highest level in more than two years yesterday as the turmoil in the Middle East continued to weigh heavily on markets, raising fears of higher energy costs for businesses and consumers worldwide.
Brent Crude hit $111 a barrel in London, its highest point since September 2008, while it touched $100 a barrel in New York for the first time in 28 months. The commodity has posted its highest three-day percentage gain in a year.
While Libyan oil exports have been cut by about a quarter due to the violence in the country, analysts are more concerned about the possibility of contagion affecting the rest of the Arab world, with Saudi Arabia seen as the key player, despite assurances that the kingdom and other OPEC countries would make up any shortfall in production.
"I don't think Libya alone will take us to $150 a barrel, but, if unrest spreads in the Gulf countries, we could easily get there. That is why it is imperative the Saudis release some extra barrels into the market now to calm the situation, rather than simply trying to talk the price down," said Edward Meir, an analyst at MF Global in New York.
The fears in the markets were exacerbated after Japanese bank Nomura said oil could top $220 if production is halted completely in Libya and Algeria.
The bank said that may be an underestimate, as speculative investors trading crude oil may amplify the price. (Additional reporting by Reuters/Bloomberg)