Oil surged to two and a half year highs near $120 a barrel earlier today as the revolt in Libya choked exports, then eased as Saudi Arabia assured European refiners the kingdom could step in to fill any supply shortfalls.
Brent crude jumped 7.5% as the revolt in Libya cut off up to three quarters of the OPEC nation's 1.6 million barrels per day of production, according to Italian oil company ENI, a top player in Libya's oil sector.
The International Energy Agency said, however, that the loss could be smaller.
The Paris-based energy adviser to 28 industrialised nations estimated that between 500,000 to 750,000 barrels per day of crude oil - less than 1% of global daily consumption - have been lost due to the Libyan crisis.
Oil markets, on edge that the unrest that has swept across Northern Africa could spread to other oil-producing countries, eased on news top OPEC exporter Saudi Arabia was in talks with European refiners affected by the disruption.
Forces loyal to Muammar Gaddafi launched a fierce counter-attack, fighting gun battles with rebels who have threatened the Libyan leader by seizing important towns close to the capital and key Libyan oil and oil product terminals.
Brent crude traded up $3.25 to $114.50 a barrel this evening, after hitting $119.79 earlier this morning, the highest level since August 2008. US crude rose $1.40 to $99.50 a barrel, after touching $103.41, the highest since September 2009.
The stronger gains in Brent pushed its premium to US oil, which has been weighed down by high inventories at the Cushing, Oklahoma delivery point for the New York Mercantile Exchange's US oil contract, out by more than at dollar to over $14 a barrel.
Crude found also found some support after the US Energy Information Administration (EIA) showed a lower than expected build in domestic crude inventories and hefty drawdowns in petrol and distillate stocks last week.
Meanwhile, Ireland got nearly a quarter of its crude oil imports in 2010 from Libya, figures from the International Energy Agency show.
Ireland got over 23% of its total crude imports from Libya, even though the actual rate of barrels per day is low compared to others, according to data on the IEA website which listed the leading importers from the country.
Italy, which is a close ally of the desert nation hit by bloody unrest, takes 22% of its crude imports from Libya while Austria takes 21.2%.
Ireland last year imported some 14,000 barrels a day of crude oil from Libya, compared to just 3,000 barrels a day in 2007. That compared to some 376,000 barrels for Italy in 2010.
The Department of Communications, Energy and Natural Resources said the bulk of its oil supply was imported fully refined from world markets rather than as crude.
'The percentage of Ireland's crude oil imports which are sourced in Libya therefore represent a small proportion of Ireland's overall oil supply market,' it said.
'The department would emphasise that current oil industry stock levels and supply arrangements in Ireland are sufficient to meet ongoing needs and that there is no current security of supply issue,' the department added.
Banks warn of oil shortage, growth impact
Major banks warned today that an output loss from another oil producer after Libya would lead to global shortages and demand rationing and said OPEC needs to act quickly as the oil rally could derail economic recovery.
Goldman Sachs issued a note saying the world would not be able to cope with another Libya-style oil production outage as Brent oil prices rallied by over $8.50 a barrel to near $120 a barrel.
Italian oil firm ENI, a key Libyan oil player, said the OPEC member had lost three quarters of its production.
'This makes the risks now associated with further contagion much higher than they were several days ago as further disruptions could now create severe shortages in global oil markets that would require substantial demand rationing,' Goldman Sachs said.
Barclays Capital and Citi said it saw no downward pressure on prices until more oil comes to the market. 'Unless we see an explicit move from producer countries, ie Saudi Arabia, I don't think there is necessarily going to be any downward pressure on oil prices,' one BarCap analyst said.
Citi agreed that OPEC leader Saudi Arabia needed to take action within weeks. 'To date we have had a lot of words from Saudi Arabia, but they haven't done anything yet and we need to see that action,' the bank said.
Saudi sources said today that the kingdom, the only nation in the world with large spare capacity, was able to plug any oil supply gap and had the capacity to pump all types of oil, including the light oil produced by Libya. OPEC is estimated to have spare capacity of 4-6 million barrels per day, while Libya produces 1.6 million.
Deutsche Bank said oil above $120 a barrel would be an inflection point for global economic growth. 'Oil is certainly edging closer to a level that is viewed by our colleagues as a key threat to global growth,' Deutsche said this morning.
'$120 a barrel is the level that oil as a share of global GDP starts to move above 5.5% of GDP, which has historically been an environment where global growth has come under pressure,' the bank added.
BNP Paribas said it expected Brent to average $117 a barrel in the second quarter and US crude $105. It raised annual averages by $13 for US crude to $102 and by $24 for Brent to $112.
BNP said any output increase by OPEC or release of the International Energy Agency's strategic inventories would take time to reach the market. The market is driven by fears of popular upheavals spreading to countries such as Algeria or even Saudi Arabia, the bank said.
