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8A – Daily News – Wednesday, February 23, 2011 Libyan chaos spooks oil markets, raises fear of wider disruption WASHINGTON (MCT) — Oil prices spiked around the globe Tuesday as traders reacted to the spreading chaos in oil- rich Libya and fretted that a winter of discontent for tyrants also could threaten global oil supplies and the fragile U.S. economic recovery. The price for a barrel of crude oil for April delivery shot up $5.71 in Tuesday trading on the New York Mercantile Exchange, settling at $95.42, its highest in more than two years. In overseas trading, Brent crude oil on the London Interconti- nental Exchange settled up almost half a percentage point at $106 a barrel. Rising oil prices will have an immediate impact on U.S. gaso- line prices, another headache for weary consumers already facing rising food prices amid a slug- gish economy. "You'll probably see the price of gas increase this week because of the unrest," said Troy Green, a spokesman for the AAA auto club. How much is an open ques- tion. Economists fear that a sus- tained rise in fuel prices could slow the already plodding eco- nomic recovery. A price spike that spans a few weeks wouldn't be problematic, but a sustained hike to $3.50 a gallon or higher would weigh heavily on con- sumer sentiment. "Every time oil prices rise, it feeds through to consumers. It erodes growth of real disposable income," said Chris Varvares, the president of St. Louis-based forecaster Macroeconomic Advisers. He called the rising fuel prices "another head wind" for the economy. Forecaster IHS Global Insight projected that a rapid $11-per-barrel increase in the price of crude oil would trans- late into a 25-cent-per-gallon increase in gasoline prices. The economy would lose almost half a percentage point of growth if prices stayed at that level for a full year, and 270,000 jobs would be lost. "It would certainly dampen barrels per day of oil, meeting just a fraction of global con- sumption. What markets fear is that the spreading unrest could topple regimes in Algeria and Iran and even spill into Saudi Arabia. Saudi Arabia is the world's largest oil exporter and a key U.S. ally. Much of Saudi oil comes from eastern regions populated by Shiite Muslims, in a country where the rulers are Sunni Muslims. Some of the unrest that's sweeping the Mid- dle East and North Africa — most notably in Bahrain — is fueled by Shiite-Sunni animosi- ty. For now, there's no shortage of oil globally, but reported sta- tistics show that the supply is tightening. The U.S. Energy Information Administration said on Feb. 8 that the world con- sumed 84.3 million barrels of oil per day last year. Before the unrest spread across the Middle East and North Africa, con- sumption was projected to increase by 2.4 million barrels per day this year, surpassing the previous record consumption level, set in 2007 before the U.S. economic crisis went global. Rising prices boost unsavory oil producers and U.S. allies alike. "The silver lining here is it the economic recovery," said Sara Johnson, an economist with IHS Global Insight. Crude last traded below $80 a barrel on Oct. 19, settling at $79.49. It crossed $90 a barrel on Dec. 23 and since then closed above $90 16 times through Friday, bouncing between $80 and $92 — until this week. For much of February, oil has fetched a much higher price in Europe than in the United States. This gap reflected the fact that Europe gets a much higher percentage of its oil from the Middle East and North Africa. But on Tuesday, Libya's unrest changed the equation. It was the first member of the Organization of Petroleum Exporting Countries to teeter on the verge of collapse, and its strongman, Moammar Gadhafi, abrogated his country's oil con- tracts Tuesday. "It's exacerbating the situa- tion, and all the more because they are an actual producer and exporter in OPEC. We're watch- ing developments there extremely closely," said John Kilduff, a veteran oil analyst on Wall Street for Again Capital. "The situation is devolving. If you look at the map of the region, you work your way counterclockwise. ... The Saudis are encircled here by countries that are experiencing political turmoil." Libya exports 1.2 million gives Saudi Arabia and the rest of the oil-producing countries a huge amount of money. It gives them enough money to slow their potential anti-government forces, and that at least keeps them at bay," said Fadel Gheit, a managing director and senior oil analyst for investment advis- er Oppenheimer & Co. The Saudis "should be smart enough to know that the world is chang- ing and they better move with it." If Iran, already facing unrest, were to descend into the kind of chaos witnessed in Libya, that could send oil prices soaring. Iran is the second-largest oil exporter in OPEC, much of its supply going to Asia. "If that output were disrupt- ed, the Chinese and the Japan- ese would go out to the global markets. ... We'd be in competi- tion for the much lower oil out- put," Kilduff said. Trying to calm fears, the Paris-based International Ener- gy Agency issued a statement Tuesday that said it "stands ready, as always, to make oil available to the market in the event of a major supply disrup- tion if alternative supplies can- not readily be made available via normal market mecha- nisms." 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