NEW YORK – Oil prices hit a 29-month high Friday after the government said the nation's unemployment rate fell to 8.9 percent in February.
The Labor Department said the economy added 192,000 jobs last month. That suggests more people will be driving to work at a time when world oil supplies are under pressure because of the Libyan crisis and unrest in the Middle East.
Benchmark West Texas Intermediate crude for April delivery gained $2 at $103.91 per barrel in New York. The price jumped to $104.64 per barrel earlier in the session, the highest level since Sept. 29, 2008.
Gasoline prices have shot up an average of 35 cents per gallon since an uprising in Libya began in mid-February. A gallon of regular unleaded gained another 4.4 cents overnight to a new national average of $3.471 per gallon, according to AAA, Wright Express and the Oil Price Information Service.
Pump prices are soaring much faster than analysts expected, as a wave of rebellions sweeps across North Africa and the Middle East. Prices should peak between $3.50 and $3.75 per gallon this spring, according to Tom Kloza, OPIS chief oil analyst.
In Libya, tensions escalated further on Friday as forces loyal to Moammar Gadhafi used tear gas to repel protesters in Tripoli. Most of Libya's oil production has been shut down because of the crisis, and experts say the country's oil fields will be threatened as long as there's no clear leader in charge.
Saudi Arabia has increased production to make up for the loss of Libyan crude, but a lengthy struggle could put significant pressure on world supplies. Traders are still concerned that the unrest in North Africa, which already has ousted leaders in Tunisia and Egypt, will encourage pro-reform protesters to dig in and further challenge neighboring regimes in the Middle East.
North Africa and the Middle East are home to the largest oil producers in the world and export a quarter of the world's oil.
Oil prices rose Friday as anxious traders prepared for the weekend. Two weeks ago, oil surged more than $7 per barrel in electronic weekend trading, and prices are again climbing on the expectation that oil will jump before Monday trading begins.
Oil is getting more expensive as the economy of the world's largest oil consumer, the U.S., appears to be improving. Last month, employers hired at the fastest pace in almost a year, pushing the unemployment rate down to the lowest level since April 2009. Retailers reported surprisingly strong revenue gains in February and businesses ordered more manufactured goods from U.S. factories in January.
The Energy department said this week that petroleum demand has grown for four straight weeks, resulting in unexpected drops in the nation's oil and gasoline supplies last week.
"The economy just seemed to be getting its mojo back," PFGBest analyst Phil Flynn said. "The question, now, is when will higher energy prices take that mojo away?"
Analysts say the economy can probably stay on the upswing as long as oil stays below $120 per barrel. If it goes higher, and pushes up the cost of fuel, consumers could rein in spending, commuters may opt for public transportation and car pools, and leisure travelers will probably vacation closer to home.
"That's when it really starts to do damage," Flynn said.
If oil rises to $150 or more per barrel, and holds at that level for months, it could trigger another recession, economists said.
In other Nymex trading for April contracts, heating oil added 3 cents at $3.0777 per gallon and gasoline futures gained 2 cents at $3.0429 per gallon. Natural gas gained 2 cents at $3.795 per 1,000 cubic feet.