The benchmark light, sweet crude futures contract touched the key $100 a barrel level in New York on Wednesday for the first time since September 2008. On Thursday, the April contract was at $100.91 in premarket trading but slipped back under $100, to $99.28, in early trading.
In London, the April contract for Brent crude futures was at $114.92 a barrel, up $3.67, in afternoon trading. Earlier it had risen to $119.79, the highest since mid-2008.
The Dow Jones industrial average was down 32.74 points or 0.27 percent. The broader Standard & Poor’s 500-stock index was flat while the Nasdaq gained 7.11 points or 0.27 percent. Traders in New York took in the latest weekly unemployment data, which said that the number of laid-off workers applying for unemployment benefits dropped by 22,000 last week to a seasonally adjusted 391,000.
In London, the FTSE 100 was down 0.24 percent while the CAC 40 in Paris lost 0.13 percent. The DAX shed 1 percent in Frankfurt. Most Asian markets, aside from mainland China, closed lower Thursday.
The spreading of unrest from Egypt to Libya in recent weeks has sharply magnified the potential shortfall for global markets — and especially Europe, given that Egypt produces 500,000 barrels of oil a day compared with 1.5 million or so in Libya, where producers have been winding down production.
The main focus in the markets Thursday was again on the world’s top exporter, Saudi Arabia. Analysts said the oil price rise was checked after news reports cited unnamed Saudi officials saying the country was willing and able to supply oil to replace Libya’s disrupted supply if needed.
But that switch will not be seamless for many refineries, particularly in Europe and Asia. While Libya produces less than 2 percent of the world’s oil, the high quality of its reserves magnifies its importance in world markets.
Libya’s “sweet” crude oil cannot be easily replaced in the production of gasoline, diesel and jet fuel, particularly by the many European and Asian refineries that are not equipped to refine “sour” crude, which is higher in sulfur content. Saudi Arabia has more than four million barrels of spare capacity and has promised to tap it if necessary, but that capacity is mostly for sour grades of oil.
Should the turmoil in Libya last for more than a few weeks, oil experts predict that European refiners will be forced to buy sweet crude from Algeria and Nigeria, two principal sources of sweet crude for the United States. That would probably push up American gasoline prices, which have already risen 6 cents a gallon over the last week to an average of $3.19 for regular grade.
Oil companies in Libya continued to scale back operations. Paolo Scaroni, the chief executive of Italian oil giant ENI, was quoted by Reuters saying that the turmoil in Libya had cut the country’s oil output by 75 percent, or 1.2 million barrels a day.
The Spanish energy company Repsol said Thursday that gross production of oil in the Libyan fields in which it has concessions is slightly above 50 percent of capacity. The group’s chairman, Antonio Brufau, said the company is producing about 160,000 barrels of crude daily from those fields, down from 360,000 barrels before the crisis.
Stephen J. Lewis, head of research at Monument Securities in London, said the risk of a broader sell-off across asset classes still appeared limited as long as the Federal Reservecontinues to pump huge amounts of liquidity into the financial markets through itsquantitative easing program.
“Underlying all this, the state of liquidity will remain strong as long as the Fed keeps buying assets,” he said. “I’d say there is still a fairly positive backdrop for risk markets until till June.”
Analysts at Deutsche Bank said in a research note that for there to be a lasting impact on the recovery from the spike in crude, “there may have to be serious disruption to Saudi oil supplies” or another reason why light, sweet crude prices climb above $120 barrel. This, they said, “will be an inflection point for global growth.”
Gauging the impact on inflation and prices that Western consumers will pay at the pump is difficult and depends on the actions of oil companies and governments. The major oil companies could choose to limit price increases and temporarily accept lower margins to keep prices from rising too high. Some oil companies will have hedged against rises in futures prices, which would also allow them to limit retail rises.
Also, advances in refining techniques in recent years allow companies to produce more of the lighter oil used by consumers — like gasoline and diesel — from heavy, unrefined oil than was the case even five years ago.
Consumers in the United States are likely to feel the price increase at the pump more quickly and directly than their European counterparts, given the fact that in Europe, a much higher percent of the price at the pump is in fact tax — about 80 percent in some countries.
In a research report released Wednesday, analysts at Barclays Capital in London said that they remained bullish on the long-term oil price regardless of the political situation in the Middle East because “field decline and constrained access to new exploration acreage mean new supply will struggle to keep pace with demand growth.”
There is still spare production capacity among producers, according to the report, written by analysts including Tim Whittaker, but that has been falling from a peak in 2009 as demand growth heads upward, led by emerging markets.
The Barclays report forecast global demand would increase by 2 percent this year, led by further strong growth in China and other emerging markets.
“We expect oil prices to follow an upward trend until the middle of the current decade, with lower spare capacity over time resulting in a greater sensitivity to geopolitical trends,” the report said.