22nd February 2011
Rising oil prices caused by unrest spreading across the Middle East could derail the global economic recovery, a world energy agency warned today.
Birol said "The global economic recovery is very fragile – especially in OECD countries."
He added that IEA members would consider a coordinated release of oil from emergency stocks to tackle any supply disruption and that Saudi Arabia stood ready to pump more oil if necessary.
Brent crude oil rose nearly $2.83 to $108.57 a barrel after hitting $108.70 on Monday, while US crude for March delivery, which expires on Tuesday, also touched a two-and-a-half-year high, rising to $94.49.
On This is Money it was reported that gold, rose above $1,400 an ounce for the first time in nearly seven weeks.
Other precious metals also rallied: silver powering its way to its highest level for more than 30 years.
Joshua Raymond, a market strategist at spread-betting firm City Index in London, told This is Money: "Traders hate uncertainty and whilst they appeared to digest the continuing unrest in the Middle East with ease last week, the escalation in both violence and unrest in Libya has convinced traders to flee risky asset classes and seek safe-havens.'
Energy ministers from consuming and producing countries were due to meet in Riyadh on Tuesday.
On Citywire West Texas Intermediate oil futures shot up 4.35% to $89.95 a barrel and Brent crude oil futures surged 2.4% to $105 a barrel. Gold prices jumped 1.38% to $1,407 an ounce.
Amid the unrest, Fitch cut its credit rating of Libya by one notch to BBB, saying it may reduce it further, particularly if oil production in the country was disrupted.
The FTSE 100 index of blue-chip shares dropped 1.12%, or 68 points, to 6,015 and the Mid-250 index fell 0.85%, or 101 points, to 11,728. US markets were closed for a national holiday.
Capital Economics noted that the unrest in Libya – which exports around 1.1 million barrels per day of crude – was ‘particularly worrying' because of the regime's apparent willingness to use ultimate force against the opposition and its record of supporting extremists in other countries both in the region and in the West.
Meanwhile, sterling slipped 0.23% against the dollar, to $1.622, and weakened 0.07% against the euro, to €1.186.
On Citywire Anonymous 1 thought the FTSE was holding up well. .
"Perhaps a buying opportunity but most of the Blue Chips are holding up well. Neil Woodwards defensive stance might be the right one, I bought another ladle of Pennon today."
But the Guardian FatCat08 accused traders of reacting too quickly.
"The FTSE 100 index in London was down more than 60 points in early trading at 5953.95 as the market took fright at the escalating Libyan crisis.
"I hate these knee-jerk markets. If a few quid at the pump is the price of getting rid of l Gaddafi, then so be it. As we whimper about the fall in BP's share price some very brave people in Tripoli are being bombed and strafed by their own government. Oil supply will be resumed by whomever is in power in Libya. They will need the revenue to rebuild the country, so don't sell your June futures too quickly."
dorlomin also on Guardian, added: "Libyas oil is largely for European delivery. It's total output should be easily made up for by shuttered in capacity in OPEC as they still officialy have spare capacity through their quota system, US strategic reserves should be able to fill the gap till the pumps are back running.
"I recall Saudi and Iran having to hire older tankers to store heavy oil surplus offshore, I wonder if that is still available?