LONDON/NEW YORK (Reuters) - Brent crude oil prices hit $108 a barrel for the first time since 2008 on Monday on fears that spiraling violence in Libya could lead to wider supply disruptions from the OPEC member.
U.S. oil prices led the rally to jump by more than $5, the most in over two years, as traders also rushed to cover short positions in the key Brent/WTI spread, which had blown out to a record $16 a barrel. The April spread narrowed to $10 during the day, but widened to over $12 in after-hours trade.
The focus was on deadly clashes in Libya, where one oil firm was shutting down some 100,000 barrels per day (bpd) of production and others evacuated staff. The leader of the Al-Zuwayya tribe threatened oil exports to the West would be cut off unless authorities stopped violence.
"The market is on edge about the potential for Middle East and North Africa supply disruptions," said Mike Wittner, head of commodities research, Americas, at Societe Generale.
"If you've got reports that actual disruptions are starting to occur, it's going to have a supportive impact. A lot of it is high-quality crude and that is important as well."
The increasingly violent protests that appeared to put Muammar Gaddafi's four decades of rule in jeopardy were the realization of weeks of mounting concerns that Egypt-inspired unrest would seep into nearby oil producers.
Brent oil futures, which have climbed more than $10 this year largely due to the increasing geopolitical risk premium, jumped $3.22 a barrel, or 3.2 percent, to settle at $105.74 a barrel. They jumped another $2 to trade as high as $108 in after-hours dealing, the highest since September 4, 2008.
The March U.S. crude oil contract, which expires on Tuesday, surged $5.22 a barrel to trade at $91.42 a barrel in late-afternoon activity -- the highest in two weeks.
Overall trading volume was less than one-third the 30-day average due to the U.S. Presidents Day holiday, and the U.S. market won't issue an official settlement until Tuesday.
The more-active April contract jumped as much as $5.75 to a high of $95.47 a barrel, at one point narrowing the Brent/WTI contract by nearly $3 to $10 a barrel as traders covered short positions built up as the spread ballooned from about $3 in January to a low of $16 last week.
Brent's after-hours rally forced the spread back out to $12.40 a barrel.
In Libya, scores were killed in anti-government protests as one of the region's bloodiest revolts hit Tripoli for the first time, while army units defected to the opposition and Gaddafi's son vowed to fight to the last man standing.
On Sunday, Shaikh Faraj al Zuway, the leader of the Al-Zuwayya tribe in eastern Libya, told Al Jazeera: "We will stop oil exports to Western countries within 24 hours" should the violence not stop.
Ninety percent of Libyan oil exports come from the eastern region of Cyrenaica, epicenter of the revolt, and unrest there could pose a graver threat to oil supplies than in other nations if separatists target infrastructure and look for a bigger slice of revenues, analysts say.
"Libya is a significant producer and exporter of good quality crude oil, and threats by the tribal leader to stop production are worrisome," said Christophe Barret, an oil analyst at Credit Agricole Corporate and Investment Bank.
Wintershall, the oil and gas exploration arm of BASF AG BASF.DE, said on Monday it was winding down Libyan oil production of as much as 100,000 barrels per day (bpd), about 6 percent of output in Africa's No. 3 producer.
Other companies, including Royal Dutch Shell Plc (RDSa.L), ENI (ENI.MI) and OMV (OMVV.VI) said production was proceeding normally, but they were withdrawing expatriate staff. The United States has ordered all nonemergency personnel to leave Libya.
A wave of popular unrest in North Africa and the Middle East has already toppled long-time leaders in Tunisia and Egypt, and traders are watching events carefully in other members of the Organization of the Petroleum Exporting Countries (OPEC) for signs of escalating tension.
While protests continued in Bahrain and Yemen, the greater fear was that discontent among majority Shi'ites in Bahrain who are protesting against the Sunni government might spread to Saudi Arabia's own Shi'ite minority -- who mostly live in the eastern province, the source of the kingdom's oil wealth.
"The biggest concern is current contagion spreading to Saudi Arabia," said Michael Hewson, a market analyst at CMC Markets, adding that "markets hate uncertainty and will act first, think later."
The turmoil is complicating OPEC's effort to maintain a stable oil price, with ministers gathering for a producer-consumer conference in Riyadh seeking to keep the focus on fundamentals rather than geopolitical risk.
"We're much more focused on how the market balance is -- is it sufficiently supplied? And the answer is 'yes, abundantly.' Therefore, does the situation warrant any kind of intervention? I don't think so," said Deputy Saudi Oil Minister Prince Abdulaziz bin Salman Al-Saud.
He also reiterated the long-held Saudi view that $70 to $80 was the fair price for oil.
Reporting by Jessica Donati and Jonathan Leff; Editing by Anthony Barker, Gerald E. McCormick and Jan Paschal