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Oil prices surged to a two-and-a-half year high Tuesday while stock markets fell around the world as political unrest deepened in Libya, home to the largest oil reserves in Africa.

Benchmark West Texas Intermediate for April delivery jumped 6.4 per cent to $95.42 per barrel in New York -- the highest level since October, 2008. Brent crude rose 44 cents to $106.18 per barrel on the ICE Futures Exchange. Brent may trade as high as $110 a barrel in coming weeks if the unrest persists, Goldman Sachs predicted.

The move came as concern over geo-political risks deepened. Nearly 300 people died in the capital Tripoli and across the country as fighter jets bombed parts of the city, al-Jazeera reported Tuesday. In a televised speech Tuesday, Libyan leader Moammar Gadhafi refused to step down, saying he would die "a martyr."

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"Should the violence escalate further...clearly there is enhanced potential for serious outages and consequent knock-on effects for global prices," said economists at IHS Global Insight.

Two major oil companies suspended production Tuesday. Italy's Eni, the biggest energy producer in Libya, stopped production, while Spain's Repsol-YPF likewise halted operations. BP said Tuesday it evacuated 70 people from Libya.

Libya is the 17th-largest oil producer in the world and the third-largest in Africa.

Saudi Oil Minister Ali al-Naimi sought to reassure markets Tuesday, saying OPEC is prepared to meet any shortage of supplies stemming from unrest in the Middle East and that its members have enough spare capacity to do so. He said the current oil market is different from 2008, when supply bottlenecks drove crude prices to historical levels of more than $147 dollars a barrel.

Geopolitical turmoil is adding about $10 to the price Brent oil, Angolan Oil Minister Jose Maria Botelho de Vasconcelos told Bloomberg News.

If the unrest spreads to Saudi Arabia, oil could hit $200 a barrel, said David Rosenberg, chief economist at Gluskin Sheff + Associates.

Adding to the turmoil in currency markets, New Zealand's second-largest city, Christchurch, was hit by a 6.3 magnitude earthquake.

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The MSCI World Index fell 1 per cent, the most since Jan. 28, and the Bloomberg GCC 200 Index of Persian Gulf shares sank to a five-month low. Surging energy prices also clipped shares in the airline industry.

In Canada, consumers have seen little impact at the pumps so far. The national average for a litre of regular gasoline in Canada is $1.13 - little changed from a month ago, according to price monitoring website Gasbuddy.com.

With files from Bloomberg News and other wire services

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