Oil prices climbed to near $106 a barrel Monday as intense fighting between Libyan government forces and rebels appeared to be turning into a civil war and raised the prospect of a prolonged cut in crude exports from the OPEC nation.
By early afternoon in Europe, benchmark crude for April delivery was up $2.25 to $106.67 a barrel, the highest since September 2008, in electronic trading on the New York Mercantile Exchange. The contract had gained $2.51 to settle at $104.42 a barrel on Friday.
In London, Brent crude for April delivery was up $1.80 to $117.77 a barrel on the ICE Futures exchange.
Over the weekend, supporters and opponents of Libyan leader Moammar Gadhafi fought in several cities, heightening fears that the country is headed for a protracted conflict. Libya's oil output has fallen by at least 1 million barrels per day from 1.6 million since the uprising began last month.
Investors also are concerned violent protests and political upheaval could intensify in the Middle East, where Iran, Iraq, the United Arab Emirates, Kuwait, Bahrain, Qatar, Oman and Saudi Arabia have more than 60 percent of the world's proven oil reserves.
"It is essentially the fear of the unrest spreading across the entire region which is pushing oil prices up," said Commerzbank in Frankfurt. "Northern Africa and the Middle East produce more than one-third of the global supply of crude oil."
Citigroup said it raised its 2011 average forecast for Brent crude to $105 from $90, but doesn't expect the violent protests in North Africa and the Middle East to spread to Saudi Arabia, the world's largest oil exporter.
"We assume that output disruption is maintained through the second quarter," Citigroup said in a report. "Output disruption, or at least the threat of, will support a fear premium for the rest of 2011."
Some analysts expect the recent jump in oil prices - up 26 percent since Feb. 15 - will only have a negligible impact on inflation and economic growth in the U.S., the world's largest oil consumer.
"Oil above $100 will not send the economy back into a recession," Capital Economics said in a report. "The oil price would have to rise much further to seriously threaten the U.S. economy."
Nonetheless, President Barack Obama's chief of staff said Sunday that the administration was evaluating the possibility of tapping into the country's strategic oil reserves - totaling 727 million barrels - as a way of contending with rising gasoline prices.
While the fear of supply disruptions was usually mentioned as the key factor for higher oil prices, analysts said speculators also were playing a role.
The large trading volumes tied to speculative investments had helped boost market transparency and liquidity, Commerzbank said.
"Things become critical, though, when speculators become the main driving force behind prices and, as we see it, this is the case at the moment on the energy markets," the German bank said.
In other Nymex trading in April contracts, heating oil rose 3.6 cents to $3.1253 a gallon, and gasoline gained 3.74 cents to $3.0838 a gallon. Natural gas futures were down 7 cents at $3.74 per 1,000 cubic feet.