On Tuesday, US-traded crude oil futures initially jumped to trade as high as $98.50 per barrel, or an increase of 14 percent from last Friday’s closing levels, on escalating tensions in Libya.

The fear is that as foreign oil firms pull out of the country amid violence, oil production will be impaired. Moreover, if Libya descends into a civil war, as some have warned, oil production may halt for the long-term.

Libya is the 12th largest oil exporter in the world and ranks 10th in proven oil reserves. While it's a sizable player in the market, its production levels won’t necessarily dictate global oil produces, especially if Saudi Arabia, the number one exporter in the world, looks poised to fill any future gaps.

Saudi Arabian Oil Minister Ali al-Naimi said the following on Tuesday:

*What I would like you to convey to the market: right now there is absolutely no shortage of supply.

*I think this is a situation of fear, concern which will be very short term and will have no long range effect.

*This is not 2008. It's extremely different. Today supply and demand are equal.

*OPEC is ready to meet any shortage in supply when it happens

Moreover, International Energy Agency chief Nabuo Tanaka on Tuesday said we have strategic stockpiles of 1.6-billion barrels and I know that OPEC has a good spare capacity, reported CNN.

In other words, the biggest oil producer(s) in the world have the capacity and the willingness to increase production if Libya falls into further turmoil.

In response, US-traded crude oil futures dropped back down to $95.20, or about 10 percent higher than last Friday’s level.

Email Hao Li at hao.li@ibtimes.com

Click here to follow the IBTIMES Global Markets page on Facebook.

Click here to read recent articles by Hao Li.