THE PRICE of oil continued to surge yesterday, after at least half of Libya’s production ground to a halt amid escalating violence.
Brent crude for delivery in April soared six per cent to race to more than $112.12 a barrel, its highest level in two-and-a-half years. West Texas Intermediate crude for March delivery jumped 3.9 per cent to $98.89 a barrel, smashing the 29-month high it hit earlier.
Analysts warned of far worse to come if the contagion spreads, with Nomura saying oil could hit a staggering $220 a barrel if both Libya and Algeria both halted oil production entirely.
Repsol, one of the largest foreign operators in Libya, has suspended all its production, as has German company Wintershall, while Italian oil giant Eni said it has closed some operations. Statoil, BP and Shell have stripped down or closed their operations in the country.
Saudi Arabia said it could meet any oil shortfall caused by a drop in Libyan oil production, pointing to its 6m barrels a day surplus, with Libya producing just 1.6m barrels.
However, analysts at Barclays Capital say it is not that simple, with Libyan and Saudi oil not directly interchangeable. Libyan crude is a higher grade that needs less refining to its Saudi equivalent and a drop in Libyan production will hit specific types of oil.
The chaos follows another day of violence, with Muammar Gaddafi battling to retain control of Tripoli and areas in western Libya as protesters consolidated gains in the east. The body-count from the turmoil is now thought to be at least 1,000.
The British foreign office was forced to defend its approach to the Libyan crisis as the estimated 500 Britons stranded there struggled to evacuate the violence-torn country. The first specially chartered plane to Tripoli sent to rescue them spent four hours on the tarmac at Gatwick with a technical fault, before eventually departing.
The FTSE 100 slipped 1.22 per cent to 5,923.53 – a three-week low yesterday. Airlines were among the hardest hit, with EasyJet dropping 2.9 per cent and British Airways owner ICAG falling 1.6 per cent.
As fears of a contagion to other oil producing countries spread, Saudi Arabia’s King Abdullah bin Abdul Aziz promised $36bn (£22bn) in benefits to his people in a bid to avoid a similar fate.