BBC News

Oil prices jump $2 after US leads air strikes on Libya


Oil prices have climbed after a series of air strikes were carried out by allied forces against Libya.

Brent crude rose $2.26 to $116.19 a barrel, while US light crude rose $2.13 to $103.20, before both slipped back.

Libya is the world's twelfth-largest oil producer. There are concerns about the extent of the damage the conflict may do to its facilities.

Oil prices have been volatile as markets have dealt with a number of issues including the Japan earthquake.

Fear factor

Amrita Sen, an analyst at Barclays Capital, said there was concern about further escalation of the situation in Libya now that the extent of military involvement was clearer.

"The damage to infrastructure might be larger, keeping Libya out of the oil market for longer," she said.

Since the start of the unrest in Libya, Saudi Arabia and other OPEC nations have assured that they are willing to increase their output and replace any loss in Libyan supplies.

These assurances helped calm markets a bit, but the air strikes on Libya over the weekend have once again stoked fears.

Analysts say that uncertainty about the future is driving market sentiment.

"I can see uncertainty and fear driving the price of oil higher in the short term," said Matthew Lewis of CMC Markets.

Mr Lewis also added that as long as a permanent solution to the Libya unrest was not achieved, oil price will remain volatile.

"At this stage, it looks like Libya has further to play. Gaddafi still seems very defiant," he said.

"We'll see further spikes and shocks in the oil market this week,"

'Risk premium'

The uprising in Libya is not the only concern that has got the markets worried about oil supply and prices.

The recent unrest in Bahrain is playing a major role as well.

"Even though Bahrain is not a major oil producer, its location if geographically critical," said Ong Yi Ling of Philip Futures.

Thera are concerns that the crisis in Bahrain could spread to other oil-producing nations in the Middle East affecting oil supplies.

Ms Ling said this uncertainty is being factored in by the markets.

"There is a Middle-East risk premium attached to the oil price," she said.

She warned that if the crisis did spread to other other oil producing nations, price could spike even further.