The unrest in Libya has continued to fuel risk aversion and has pushed both Brent and US light crude to 2 and a half year highs.

From Reuters: Brent and U.S. crude at 2.5-year highs on Libya fears

At 1142 GMT, Brent crude oil futures for April delivery were up $1.36 to $107.10, after earlier touching $108.57. U.S. crude for April delivery was up $6.82 at $96.53 as investors and traders became increasingly nervous about contagion.

The jump in U.S. crude is partly explained by the fact that electronic trading of the contract occurred on Monday, but there was no settlement close as the exchange in New York was closed for a holiday.

Libya produces around 1.6 million barrels of oil per day, and OPEC has spare capacity of up to 6 million barrels, so even if all exports were stopped this would not create a supply shortage, said Carsten Fritsch, an analyst at Commerzbank.

The article goes on to say that Libya on its own would not cause a shortage in oil supplies, but the fear is that this political unrest and protests spread to larger oil producers like ALgeria, Kuwait, or the United Arab Emirates.

OPEC has come out and said that it's other members can increase production to make up for lost supply from Libya, but as we can see for the time being that has not calmed markets.

From the Wall Street Journal: IEA: OPEC Can OFFset Libyan Disruption

Mr. Tanaka said Tuesday he had received reassurances from OPEC's secretary general that the organization would use its spare capacity in the case of a supply disruption. I talked with Secretary General El Badri and he said he is very much committed if disruption happens, he will use it, the spare capacity, Tanaka said. The message to the market is, 'Don't panic. We have enough stockpiles.' He also said the IEA's forecast at this moment, is if OPEC produced current level the market will be very well provided.

Around 50,000 barrels a day of oil output from Libya have been shut down due to the unrest there, David Fyfe, head of the Oil Industry and Markets Division at the IEA told a London conference Monday. Libya, an OPEC member, pumped 1.6 million barrels a day of oil in January, according to a Dow Jones Newswires survey. Its current oil production is equivalent to around 1.7% of total world output, of which it exports 1.17 million barrels a day.

The country holds around 46.42 billion barrels of oil reserves, the largest in Africa.

The risk aversion caused by Libya hit UK shares as the FTSE was down around 0.75% as of 8:30AM ET. That will keep the GBP pressured, and with the Euro climbing on the back of hawkish comments from ECB Memeber Mersch, the EUR/GBP moved strongly in favor of the Euro as a result.

From Reuters: FTSE Falls as Risk Assets Shunned on Libya Unrest

Another big gainer from the flight to safety is US Treasuries, which means we should see lower yields for US government debt. Usually lower yields tend to weaken the USD, but during times of risk aversion, we should see the USD gaining against higher yielder rivals, though it was lower against the Swissy.

From MarketWatch: Treasuries Gain as Middle East Violence Grows

Treasury prices rose on Tuesday, along with the U.S. dollar and gold as concerns about rising violence in Libya and tensions in Middle Eastern countries triggered a shift by investors out of assets considered riskier and into safer-seeming ones. Treasurys were higher overnight as the tensions in the Middle East spread further in Libya, aiding the flight-to-quality bid, said strategists at CRT Capital Group. Yields on 10-year notes, which move inversely to prices, fell 4 basis points to 3.53%, after earlier touching the lowest since Feb. 3. U.S. bond markets were closed Monday for Presidents Day.