U.S. oil prices surged to $100 a barrel for the first time since October 2008 Wednesday, driving investors to the safety of gold and the Swiss franc as the revolt in Libya fanned fears of inflation and a stalled recovery.
Brent crude futures in London jumped above $110 a barrel after the first cut in oil supplies due to the political violence in North Africa fueled concerns that if oil rises enough, it could slow global economic growth.
Gold rose to its highest in more than seven weeks and the Swiss franc edged toward a record high as turmoil in Libya drove investors to seek safety. The U.S. dollar fell broadly as the greenback appeared to lose its safe-haven luster.
The dollar fell 0.6 percent to 0.9326 of a Swiss franc, near its all-time low of 0.9301.Brent posted the biggest three-day gain since October 2009 as traders assessed whether the unrest that has swept North Africa since January could spread to Saudi Arabia and the big exporters in the Gulf.
"Oil prices are not likely to fall any time soon," said Shelley Goldberg, commodities and energy strategist at Roubini Global Economics in New York.
"It's not all about Libya, but a fear these movements will spread further across the Middle East and North Africa region," she said.
Higher volatility could lead West Texas Intermediate, the U.S. oil benchmark, to touch highs of $110 or $115 a barrel this year, Goldberg said.
In Libya, thousands celebrated the liberation of the eastern city of Benghazi from the rule of Muammar Gaddafi, while Italy's foreign minister said as many as 1,000 people have been killed since the revolt began around a week ago.
Up to 25 percent of Libya's daily crude production of about 1.6 million barrels has been shut down, according to Reuters calculations, helping to pressure oil prices.
U.S. light crude settled up $2.68 at $98.10 a barrel, after earlier surging almost 5 percent to $100 on the nose. Brent crude futures closed up $4.47 at $111.25.
Despite the surge in prices to the psychological peak of $100, the drag on the economy might not be that great.
"Although higher oil prices at these levels would negatively impact the economy, material damage wouldn't likely occur until we moved above the $120 level," Chris Jarvis, president of Caprock Risk Management in Hampton Falls, New Hampshire.U.S. gold futures for April delivery settled up $13.20 at $1,414.30 an ounce, with volume about 30 percent lower than the 30-day average.U.S. Treasury debt briefly turned negative after an auction of $35 billion in five-year notes drew a higher yield than investors expected.The benchmark 10-year U.S. Treasury note was up 8/32 in price to yield 3.49 percent.
U.S. stocks accelerated their slide after oil prices pushed to $100 a barrel, but because a modest correction was expected, some investors took the declines in stride.
The Dow Jones industrial average closed down 107.01 points, or 0.88 percent, at 12,105.78.
The Standard & Poor's 500 Index lost 8.04 points, or 0.61 percent, to 1,307.40. The Nasdaq Composite Index declined 33.43 points, or 1.21 percent, to 2,722.99.
The MSCI world equity index was down 0.6 percent.
Traders were focused on what top OPEC exporter Saudi Arabia will do, even after its oil minister have said the kingdom and other members of the Organization of Petroleum Exporting Countries will act should a supply shortfall develop.
"I don't think Libya alone will take us to $150 a barrel but if unrest spreads in the Gulf countries we could easily get there," said Edward Meir, analyst at MF Global in New York.
Copper, often a barometer of economic demand, fell to the lowest levels in nearly a month on worries inflation could slow global economic recovery. The metal has slipped nearly 7 percent from record highs at $10,190 a tonne earlier in the month.
The euro was up 0.66 percent at $1.3743. The dollar was down against a basket of major currencies, with the U.S. Dollar Index off 0.46 percent at 77.768.