Libyan Violence Sends Oil Prices Skyrocketing

When protestors toppled the Mubarak regime in Egypt, oil prices rose -- but not that much. After all, Egypt has almost no oil. Libya, on the other hand, is a different story.

Pumping nearly two percent of the world's oil, Libya is the world's 18th largest oil producer and a member of OPEC. With the country in flames, with the military attacking anti-government protestors, and yesterday's unconfirmed and -- as it turned out -- false reports yesterday that leader Moammar Gadhafi had fled to Venezuela, the benchmark price of crude oil jumped $7.88 to just over $94 a barrel.

Brent crude even higher

The increase was smaller but the price was much higher for Brent crude, the oil that supplies much of Europe. The April futures contract in London for Brent rose $1.42, to more than $107 a barrel.

In the U.S., the price of gasoline also surged -- literally overnight. According to the AAA Fuel Gauge Survey, the average price of self-serve regular today is $3.171 a gallon -- up two cents from Friday and up a nickel a gallon in the last seven days.

Prices measured by the Lundberg Survey are actually even higher. The survey placed the price last Friday at $3.18 a gallon, before the Libyan violence rose in intensity over the weekend.

Andrea Bonzanni, an international affairs and energy policy analyst based in Geneva, says world oil supplies remain plentiful and that Mideast political turmoil is unlikely to interrupt supplies in a meaningful way. Writing in World Politics Review Tuesday, Bonzanni suggests the current price volatility is more of a result of speculators.

Speculators

"The penetration of the oil market by financial speculators has brought to oil exchanges players who do not fully understand the fundamentals underpinning the crude oil demand-supply balance and who tend to herd and engage in panic buying based on partial or wrong information," Bonzanni writes. "This effect is reinforced by the presence of traders who have no incentive in maintaining the stability of the oil market, but rather make profits on momentum trading and therefore benefit from short-term volatility. "

That may prove to be small comfort to consumers however, who can remember 2008 when gasoline prices surged past $4 a gallon, despite the fact that the country was already in a recession.