Oil hit a 32-month high above $124 today after attacks on Libyan oil fields raised the prospect of long-term supply cuts, with commodities in general rising on optimism global economic recovery will fuel demand.
Ongoing unrest in the Middle East and concerns postponed elections in Nigeria could spark a new wave of militant violence and disrupt supply also contributed to the bullish mood in the market.
By 1023 GMT Brent was up $1.49 to $124.16, after earlier touching $124.45, a level last seen in August 2008. US crude climbed $1.34 to $111.64, just below an intra-day peak of $111.68 last reached in September 2008.
"It looks like some of the fields in Libya are starting to be the target for military strikes which is worrisome because it means we have a risk of losing more crude for longer," said Christophe Barret, commodities analyst at Credit Agricole.
Rebels and forces loyal to embattled leader Muammar Gadafy exchanged bitter accusations over who had attacked oilfields and infrastructure vital to both sides.
The seven-week old civil war has cut Libya's 1.6 million barrels per day output by 80 per cent to between 250,000 and 300,000, a senior government official said.
It took Kuwait two years to restore oil production to pre-war levels of about 1.6 million bpd, similar to Libya's pre-conflict production, after the 1991 Gulf War, according to International Energy Agency data.
Fellow Opec member and 1.9 million bpd producer Nigeria, whose light, sweet crude is highly prized as an alternative to lost Libyan output, postponed parliamentary elections again in some areas although polls will go ahead in most of the country tomorrow as planned.
"Besides the ongoing fighting in Libya, the elections in Nigeria this weekend are also adding to the nervousness," said Commerzbank analyst Carsten Fritsch in a note. "Possible supply losses in Nigeria, Africa's largest oil producing country, could further tighten the supply situation for high-quality oil especially."
Further supply worries came from Norway where a trade source said the North Sea Oseberg crude oil stream will load 118,000 barrels per day in May, significantly down from the provisional programme of 160,000 bpd in April.
Crude prices rallied in step with gains across the commodities market where gold hit a record high, driven by a weaker dollar and positive global outlook despite Portugal's request for a bailout earlier this week.
But surging oil prices have stoked inflationary concerns for governments worldwide due to the potential adverse impact on economic growth of the rising cost of foodstuffs and raw materials, and the risk of demand destruction.
"Awash with still extremely cheap money - the leading policy approach to cope with the passed recession - the investment community is pouring record volumes into long commodity positions," said analysts at JBC Energy in a note.
"This drives not only fuel and food prices to record highs, but also raises the costs for other raw materials massively, clearly putting the economic outlook under threat."
Reuters
