OIL came within a whisker of $120 a barrel yesterday amid fresh concerns that the uprisings in Libya could spread to other major oil producers in the Middle East, including Saudi Arabia.
European shares fell for five days to extend their longest losing streak since October, while commodities such as wheat collapsed.
Brent crude oil for April spiked at $119.79 yesterday before easing to around $114.40 as unrest in the world's 12th-biggest exporter led it to lose as much as two-thirds of its oil output. Saudi Arabia is understood to be in "active talks" with European oil refiners which might be hit by the disruption in Libyan exports.
That would be the clearest sign yet that OPEC's most influential member is readying action to respond to the cut in Libyan output.
The kingdom had asked refiners "what quantity and what quality of oil they want", it was reported yesterday.
Goldman Sachs said the spread of unrest to another producing country could bring oil shortages and require demand rationing.
"The market cannot accommodate another disruption, in our view," analyst Jeffrey Currie said. Barclays Capital and Citi said it saw no downward pressure on prices until more oil comes to the market.
"When geopolitics in the Middle East are at play in the oil markets, all conventional bets on the direction of oil prices based on supply and demand fundamentals are off," said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas.
Disturbances in Egypt and Libya have spread to Iran, Bahrain, Yemen and Algeria. Unrest in Bahrain, which is linked to Saudi Arabia by a 26-kilometre causeway.
While wheat traded in Chicago dropped 10pc in the past four sessions, crude oil traded in New York jumped 14pc.
Grain prices surged last month as North African and Middle East countries bought more shipments to damp a surge in domestic prices that helped spark the protests from Morocco to Bahrain.
"It's not surprising to see the declines because of increasing risk aversion in the market," said Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt.
"Gold is inching higher and oil is definitely experiencing some inflows," he said.
Gold added 0.2pc to $1,414.38 an ounce, the Swiss franc climbed to a record against the dollar and the yen strengthened to a two-week high as investors sought "safer" assets.
European, Asian and US stocks sank for a fifth day, extending the longest losing streak since October, as Libya's violent uprising sent oil soaring to the highest level in 30 months.
Asian shares and US futures retreated. The Libyan revolt "is the opening of Pandora's box", said Charles Dautresme, senior strategist at Axa Investment Managers in Paris.
"We don't know how long the situation will last and that's creating uncertainty. For stocks, the impact has gone beyond just those with business there or those dependent on oil."