|News of potential use of US emergency oil stocks failed to dampen prices as investors remained jittery [GALLO/GETTY]
The price for US crude oil has risen to a 30-month high amid renewed fears over the conflict in Libya and possible unrest in Saudi Arabia, the world's top exporter and home to most of OPEC's spare capacity.
US crude oil was up $1.79 early on Monday, rising above $106 a barrel and adding to concerns that high energy costs may derail the global economic recovery.
This year's 16 per cent rally in US crude oil has prompted the Obama administration to consider releasing emergency oil stockpiles as policymakers seek ways to contain a negative spillover to the world's biggest economy.
"The concern is that with what we are seeing in Libya, it's purely fear driving the market," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.
Gaddafi has lost control of most of the country's east, the main oil producing region in the OPEC member nation, to his opponents. Many oil facilities are idle or working at well below capacity.
Libya usually produces 1.6 mn bpd, but output has been slashed by as much as 1 million bpd, according to the IEA.
Saudi Arabia has pledged to fill any supply gap caused by the disruption of exports from Libya.
The kingdom is pumping around 9 mn barrels per day (bpd) and has spare capacity of around 3.5mn bpd, a senior Saudi source told the Reuters news agency last.
But some investors fear unrest elsewhere in the Arab world could also spread inside Saudi Arabian borders. Saudi Shias last week staged small demonstrations in the Eastern Province, which holds much of the kingdom's oil wealth, leading clerics to ban protests at the weekend.
Saudi security forces also detained at least 22 minority Shias who protested last week against discrimination, activists said on Sunday.
More than 17,000 people backed a call on Facebook to hold two demonstrations in Saudi Arabia this month, the first one this coming Friday.
Prices 'may slip back'
But oil prices may slip back to more "realistic" levels around $80 later this year, Barratt said.
"Each time the price moves up a little, people are forced into the market. Once it's feeding itself, it will continue to rise," Barratt said, adding $120 may be the peak without further supply disruptions.
European equities also dropped on Monday, while high oil prices also threaten Asian economies.
"At $120 a barrel, we estimate oil prices to shave off 1.5 percentage point from baseline growth" for Asia excluding Japan, Sanjay Mathur and Erik Lueth, RBS economists said.
South Korea, the world's number five crude oil importer, may lower its three per cent crude oil import tariff to curb inflation, Yoon Jeung-hyun, country's finance minister said on Monday.
"(Regarding oil prices) we are thinking of a scenario of lowering import tariffs first, if necessary, although we will
wait and see more," Yoon told parliament.
In Spain, fears of a shortage in the oil supply has caused the government to lower the speed limit on highways from 120 km/h to 110 km/h.
William Daley, White House chief of staff, said on Sunday that the US was considering tapping into the country's strategic petroleum reserve (SPR) as a way to lower prices, adding that "a bunch of factors have to be looked at", not just prices.
One of those factors is coordinating with the other 27 member countries of the International Energy Agency (IEA), which hold emergency stockpiles equivalent to at least 90 days of net oil imports, counting both government and industry stocks.
As the world's biggest oil consumer, the United States holds the largest emergency oil stockpiles in the SPR.
Current levels of government-owned supplies are equivalent to about 1,000 times Libya's pre-crisis daily crude output of 1.6mn bpd. The proportion of crude and products in storage varies across countries.
Four storage sites in Texas and Louisiana hold a total of 726.6 mn barrels of crude, enough to cover the nation's needs for more than a month.
Japan and South Korea, among the world's top 5 crude oil importers, have no immediate plans to release oil from strategic reserves to fill any shortfall left by the unrest in Libya, industry and government officials said.
But news about the potential use of US emergency oil stocks has failed to dampen prices.
"It doesn't matter what they say because it's fear," Barratt said, referring to the Obama administration's possible use of the SPR. "We have ample supplies after OPEC, led by Saudi Arabia, stepped in."
OPEC is assessing the oil market to determine whether it should hold an emergency meeting, Mohammed Saleh al-Sada, Qatar's Energy Minister, said on Monday, but added that there is no shortage of supply in the market.
David Buik, a London-based senior market analyst told Al Jazeera, "The recovery is on the way and we don't need a setback like this.
"If we hadn't had this little local difficulty, out of the middle east, I suspect that we would see European industries probably 250 points better than they are at the moment.
"Obviously, when you get geopolitical problems, we tend to underestimate the damage they do to sentiments, and they certainly take the cream off the top."