Worried that violent protests in Libya could spread across the oil-rich Middle East, investors continued to send the price of a barrel of crude to record levels on Tuesday.

In New York, crude oil futures hit a two-year high as the benchmark West Texas Intermediate jumped nearly 7 per cent, to US$92 per barrel on the last trading day for the March contract. Trading on the April contract was also at its highest point since Oct. 2, 2008, up nearly 6 per cent to US$95.59 per barrel.

In London, Brent crude oil futures for April delivery also hit a new two-and-a-half-year high of $107, but analysts predicted the price could climb to $110 a barrel within weeks, said BNN's Michael Kane, noting it could soon go even higher than that.

"This is undoubtedly going to show up at the pump one of these days. Political turmoil in the Middle East is having a direct effect on prices for oil," Kane told CTV's Canada AM on Tuesday.

The knock-on effect has already seen a host of airline stocks -- including Delta Air Lines, American Airlines parent AMR Corp, US Airways Group and United Continental -- all fall by 5 per cent when trading resumed after Canadian and U.S. financial markets were closed for the long weekend.

Toronto's benchmark S&P/TSX composite index was down 0.13 per cent in early trading Tuesday. In the U.S., the Dow Jones industrial average was down 0.89 per cent, while the Nasdaq composite index was off 1.74 per cent.

As Africa's largest oil-producing nation, Libya is the world's 18th-largest producer and the 12th-largest oil exporter. In January, prior to the outbreak of protests demanding the ouster of longtime leader Col. Moammar Gadhafi that have now plunged the country into political chaos, Libya pumped 1.6 million barrels of oil per day, Kane said. That accounts for roughly two per cent of the global supply.

Since the bloody clashes first erupted there last week, there are reports Libya has cut daily production by almost 50,000 barrels.

Capital Economics estimates that, since the political unrest that erupted in Tunisia and has since spread to Egypt, Yemen, Bahrain, Morocco and Jordan, the price of crude has jumped about $10.

"An additional $10 on the price of oil is not insignificant, particularly for weaker economies in Europe facing a major fiscal squeeze," Capital Economics said in a report. "Given the pace at which events are unfolding, it would be daft to rule out a spike to $140 or beyond in the coming weeks, if the unrest disrupts output from the larger oil producers."

Spiking oil prices tend to stoke investors' fears of higher raw materials costs, rising inflation and a drop in global demand.

In a bid to calm the market on Tuesday, Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, said it can easily compensate for any global oil shortages caused by the turmoil in Libya.

Saudi currently produces about eight million barrels per day. But Oil Minister Ali Naimi said if necessary, the nation can ramp up production to 12.5 million barrels per day to "compensate for any shortage in international supplies."

While there has been very little supply disruption to date, reports began to emerge Tuesday about oil fields shutting down and foreign staff evacuating.

The rise in oil prices Tuesday was partly due to fears that the unrest in Libya could spread to its oil-producing neighbours including Saudi Arabia.

According to reports, Britain's BP PLC is halting operations in Libya and pulling contractors out.

Norwegian driller Statoil ASA is also shutting its Libya office and sending foreign workers home.

Australian, Dutch, German, Italian and Spanish companies have also started doing the same.

Two Canadian companies that operate in Libya, Suncor Energy Inc. and Montreal's SNC-Lavalian Group Inc. have reportedly implemented contingency plans to protect workers, but few details are available for security reasons.

Libya's economy is heavily dependent on oil revenue, which totals about 95 per cent of the nation's export earnings. Oil amounts to 25 per cent of Libya's GDP and 80 per cent of government revenue, according to the CIA World Factbook.

With files from The Canadian Press and The Associated Press