Oil prices jump by $2 per barrel over military action in Libya

Oil climbed as allied air strikes in Libya threatened to prolong a supply outage in Africa's third-biggest producer and renewed concern that escalating turmoil may disrupt Middle East exports.

Futures advanced as much as 2.3 percent in New York after Muammar Qaddafi vowed to repel attacks by missiles and warplanes against military installations. Libya's crude output has fallen to a quarter of pre-crisis production levels may stop entirely, according to the chairman of the national oil company.

Bahrain Petroleum Co. employees went on strike last week in response to a police crackdown on anti-government demonstrations, while Yemen declared a state of emergency, according to Bloomberg.

The price of oil jumped by more than $2 a barrel on Monday morning, driven higher by the military action in Libya and strong demand from Japan.

As Operation Odyssey Dawn continued in the Middle East, the cost of a barrel of Brent crude gained $2.29 to $116.22. US crude rose by the same amount, to $103.35. Analysts have predicted that the strikes against Colonel Gaddafi could push oil above its recent highs, with Brent tipped to rise above $120 a barrel, The Guardian reports.