Crude oil prices surged to a two-and-a-half-year high of nearly $107 a barrel on Monday before retreating, as the world continues to watch the turmoil unfold in oil-rich Libya.
The volatility in the oil market is sure to keep the heat on the price of gasoline, which climbed another penny to $3.51 per gallon nationally on Monday, according to AAA’s Daily Fuel Gauge Report.
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Gas stood at just $3.12 a gallon on average a month ago.
The oil markets have been inflamed by the political unrest in the Middle East and North Africa, which has eaten into production and sparked fears there could be an oil shortage.
The flashpoint for the turmoil has been Libya, a member of OPEC and Africa’s third-largest oil producer, which has been paralyzed by a revolution there and Muammar al-Qaddafi’s violent efforts to hold onto power.
Forces loyal to al-Qaddafi launched an air strike on Monday on Ras Lanouf, a key oil port east of Tripoli, the Associated Press reported. According to Reuters, a pair of Libyan oil ports were closed due to the violence.
At the same time, the markets remain jittery the unrest could spread to Saudi Arabia, the epicenter of the world’s oil production. More than 17,000 have backed a call on Facebook to hold two demonstrations against the Saudi regime, the first of which is scheduled for Friday.
“Current events have been priced in. We’re just waiting to see if another domino falls,” said Stephen Schork, editor of the closely-watched Schork Report. “If it does, we’ll probably shoot up another $10. If it doesn’t, we’ll probably fall $10.”
Slammed by the turmoil, crude leaped to $106.95 a barrel, up from Friday’s close of $104.42. But those gains proved to be hard to sustain, with crude settling at $105.44 a barrel, up $1.02, or 0.98%. That was still good enough for crude's highest settle since September 26, 2008.
“It just faded. We have a market that is extremely overbought here. Some corrective weakness is not unheard of,” said Schork.
Brent crude, which may be a better gauge of supply fears, hit $117.90 a barrel on Monday, but settled at $115.04 a barrel, down 93 cents, or 0.80%.
It’s not clear what sparked the pullback, but some cited a Reuters report about market chatter that al-Qaddafi is seeking a deal with rebels to secure a safe exit from the country.
“It’s been a day of shifting perceptions of risk, especially when it comes to oil,” Phil Flynn of PFG Best told FOX Business.
Some fear the leaping gasoline prices may crimp the global economic recovery by preventing cash-strapped consumers from spending elsewhere and raising expenses on companies like shipping giant UPS (NYSE:UPS), airliner JetBlue (NASDAQ:JBLU) and cruise ship operator Carnival (NYSE:CCL).
According to AAA, the price of regular gasoline hit $3.509 on Monday, up from $3.368 a week ago and $2.747 a year ago. Premium gasoline hit $3.772 on Monday, compared with $3.613 a week earlier.
Tom Kloza, chief oil analyst at the Oil Price Information Service, predicted gas prices could rise by another 10 to 15 cents this week.