Oil prices moved up closer to $106 a barrel Friday as political upheaval in the Middle East and signs of strong global demand kept crude near two-year highs.
By early afternoon in Europe, benchmark crude for May delivery was up 17 cents to $105.77 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 15 cents to settle at $105.60 on Thursday.
In London, Brent crude was up 3 cents at $115.75 a barrel on the ICE futures exchange.
Crude prices have jumped 25 percent since protests against Libyan leader Muammar Gaddafi that began in mid-February escalated into a rebellion and shut down most of the OPEC nation’s 1.6 million barrels per day of crude output. Fighter jets from a coalition of nations have pounded Gaddafi’s forces this week but rebels have so far been unable to mount an offensive to overthrow the regime.
Investors are also closely watching escalating protests in Syria and a power struggle in Yemen, the latest unrest in a wave of uprisings this year that unseated leaders from power in Tunisia and Egypt and sparked violent demonstrations throughout North Africa and the Middle East.
Market attention also turned to Bahrain, where at least 20 people have been killed in recent weeks as Bahrain’s rulers attempt to crush the monthlong uprising in the tiny island kingdom.
"While supply losses in Libya can currently still be easily compensated by other OPEC members given the spare capacities, this might no longer be the case if the crisis were to heighten in Bahrain," said analysts at Commerzbank in Frankfurt. "Consequently, the market is likely to watch further events there with some nervousness."
Recent signs of strong crude demand in the US and China have helped push prices higher. Chinese oil demand rose 10 percent in February from a year earlier and US gasoline inventories plunged last week, suggesting consumers haven’t cut back driving despite higher fuel costs.
"Geopolitical unrest in the Middle East amid a phenomenally strong demand backdrop keeps prices well supported," Barclays Capital said in a report.
A rebound in US stock markets and a recent slump of the US dollar — which makes crude cheaper for investors holding other currencies — have also contributed to the highest oil prices since September, 2008.
Still, some analysts say the recent run-up in prices could falter if the crises in the Arab world were quickly resolved.
"Oil prices are extremely overbought here and are susceptible to a sell-off at any point," Cameron Hanover said in a report. "If we see the mood change, we could see a sharp and striking sell-off."
The dollar could strengthen against the euro and help contain oil’s rise if the financial and political crisis in Portugal continues to deepen.
"The renewed concerns about the eurozone’s economic stability could add further pressure to the European currency," said a report from Sucden Financial in London.
Citigroup said the jump in crude prices will quicken inflation but not enough to jeopardize the global economic recovery.
"Higher energy prices raise inflationary risks, particularly because of the upward pressure it puts on food prices," Citigroup said. However, "we don’t think there is any substantial threat to global growth in the current environment."
In other Nymex trading for April contracts, heating oil lost 0.09 cent at $3.0611 a gallon and gasoline gained 0.02 cent to $3.045 a gallon. Natural gas added 4.1 cents to $4.285 per 1,000 cubic feet. –Alex Kennedy in Singapore contributed to this report.