London - Oil surged more than 7.5% to its highest since August 2008 on Thursday on concern unrest in Libya could spread to other major oil producers in the Middle East, including Saudi Arabia.
Brent crude futures for April spiked up $8.54 per barrel to a peak of $119.79, before easing back to around $114.
Disruption stemming from the revolt in the world's 12th-biggest exporter has cut at least 400 000 barrels per day (bpd) from Libya's 1.6 million bpd output, according to Reuters calculations.
ENI CEO Paolo Scaroni provided an estimate of a much more dramatic fall in Libyan output.
"There are 1.2 million barrels (per day) less on the market," Scaroni told reporters in Rome.
Eastern areas holding much of Libya's oil have slipped from the control of Muammar Gaddafi, who has unleashed a bloody crackdown on protesters to keep his 41-year grip on power.
Goldman Sachs said the spread of unrest to another producing country could create severe oil shortages and require demand rationing.
"The market cannot accommodate another disruption, in our view, with the problems in Libya potentially absorbing half of Opec's (the Organisation of Petroleum Exporting Countries') spare capacity," analyst Jeffrey Currie said in a research note.Saudi supplies
Reuters market analyst Wang Tao said technical charts showed Brent could be on course for a rise to $158 per barrel in 2011, well above its 2008 high of $147.50, while he expected US crude to touch $159 per barrel.
US crude for April delivery rose as high as $103.41, the highest since September 2009. It was up $2.50 at $100.59 in morning trade.
The cuts from Libya represent the first disruption to supply as a direct result of protests that have swept through the oil-producing regions of North Africa and the Middle East.
The concern for oil markets is how unrest might affect Saudi Arabia, which not only pumps around 10% of the world's oil but is also the only holder of significant spare crude production capacity that can be used to plug outages.
Without Saudi Arabia's 4 million bpd of spare capacity, there is little margin in the global oil supply system to deal with output disruption.
Senior Saudi sources said on Thursday the kingdom could supply high quality, light oil to replace any lost Libyan crude.
"Saudi is willing and capable of supplying oil of the same quality, either Arab extra light or through blending," one source said. "Opec stipulates that it is able to supply all types of oil if needed," the source said.Explicit move
To date, Saudi Arabia has escaped popular protests that have raged across the Arab world, toppling the long-time leaders of Egypt and Tunisia and spreading as far as Saudi neighbour Bahrain.
Barclays Capital said on Thursday Opec producers needed to make an explicit move to reassure the market over oil supplies if they wished to exert any downward pressure on prices.
"Unless we see an explicit move from ... producer countries, ie Saudi Arabia, I don't think there is necessarily going to be any downward pressure on (oil) prices," said BarCap oil analyst Amrita Sen.
Saudi King Abdullah returned home on Wednesday from a three-month medical absence, and unveiled benefits for Saudis worth $37bn in an apparent bid to insulate the oil exporter from protests in the region.
Hundreds of people have backed a Facebook page campaigning for a "day of rage" across the kingdom on March 11 to demand an elected ruler, greater freedom for women and the release of political prisoners.
Weekly US oil inventory data from industry group API showed on Wednesday that petroleum stocks had risen by 163 000 barrels last week, after analysts polled by Reuters had forecast a bigger rise of 1.2 million barrels.
Distillate inventories fell a less-than-expected 534 000 barrels and gasoline supplies fell 1.6 million barrels, API data showed, bucking analyst expectations for a rise.
The US Energy Information Administration's weekly inventory figures are due to be released later on Thursday.