Oil prices high amid Libya fears

Libya’s mounting political crisis sparked further volatility on global markets and kept oil prices close to multi-year highs on production fears.

London’s FTSE 100 Index fought back from the worst of its earlier falls, but remained in the red for the second session, down 18 points at 5996.8.

New York’s Dow Jones industrial average tumbled more than 100 points in early trade as US markets reopened following the President’s Day holiday on Monday, with falls also seen across European indices.

Brent crude peaked at more than 108 US dollars (£67.50) a barrel after reaching a two-and-a-half-year high on Monday due to concerns that Libya’s crude exports of more than one million barrels a day could be affected as foreign oil companies evacuate staff from the country.

But there was some cheer late in the session as US consumer confidence data hit its highest level in three years.

Giles Watts, head of equities at City Index, said the London market swung “violently” as it staged its late session fight back. He said: “Investors have been enticed back into the market by significant falls in equity prices and today traders have used the weakness of the last few days as opportunities to pick up banks and miners at lower prices.”

However, concerns remain surrounding surging oil prices, with predictions crude could break past its 2008 record of around 147 US dollars (£92) as the political unrest strikes right in the heart of some of the world’s biggest producing regions.

Libya is the first leading oil-exporting country to be hit by the political turmoil, but traders were also eyeing protests in Iran, the second largest producer within Opec. Europe receives more than 85% of Libya’s crude exports – mainly for jet fuel – with 8.5% going to the UK.

There were also wider concerns on the rising oil prices, with experts suggesting a jump in energy costs could hurt consumer spending and knock the fragile global economic recovery.

The International Energy Agency’s chief economist Faith Birol reportedly warned oil prices posed a serious risk to recovery by weakening trade balances and putting pressure on central banks to raise interest rates and rein in inflation.