Oil Prices Surge to Two-Year High on Middle East Turmoil

Protests in the Middle East drove oil prices to a two-year high yesterday (Tuesday) as anti-government violence spread in Libya, threatening the nation's oil industry and raising the possibility the contagion could soon affect larger producers in the region. Oil jumped more than $7 a barrel, breaching $98 for the April contract of West Texas Intermediate (WTI) crude on the New York Mercantile Exchange . Meanwhile, Brent crude climbed as much as 2.7% to $108.57 on the ICE Futures Europe Exchange . "Oil is being bought on the risk that this contagion will spread through the Middle East," Jonathan Barratt, managing director of Commodity Broking Services in Sydney, told Bloomberg News by telephone. "This effect is a knee-jerk reaction to the fact that this could spread." Libya is the latest chapter in a saga of unrest that began in Tunisia in January and has raced through North Africa and the Middle East in recent weeks. Iran added to the tension in the region yesterday by entering two of its naval ships into Egypt's Suez Canal headed toward the Mediterranean. Israel considers the presence of Iranian warships sailing through the canal "a provocation," Foreign Ministry spokesman Yigal Palmor told Bloomberg . Fears of massive disruptions in the market have oil traders on edge and the energy markets are now braced for an even sharper run-up, according to Dr. Kent Moors, a noted energy expert and editor of the Oil and Energy Investor . "That traders do not regard this as a short-term problem is seen in the futures contract curve. We have an escalating and contango market, one in which each month further out has a higher price than earlier months," said Moors. "The volatility will now kick in big time, and that will further unnerve the trading environment." Libya's importance as an oil producer is more symbolic than anything else.