Brent rose towards $116 a barrel on Wednesday on reports of Libyan government counter-attacks on rebel-held towns in the east of the country, heightening fears of a civil war in the world's 12th largest oil exporter.
On Wednesday, forces loyal to Muammar Gaddafi attacked the eastern oil town of Brega killing 14 people, rebel officers in the region told Reuters, in the first demonstration of a concerted fight back by the Libyan leader in the rebel-controlled east.
Brent crude for April delivery pared earlier losses to trade 15 cents higher at $115.57 a barrel at 1000 GMT after previously sliding by almost 90 cents.
U.S. crude for April delivery rose by 41 cents to trade at $100.04 a barrel around the same time.
"Oil prices are subject to the ebb and flow of news out of the Middle East … there's a good chance of Brent rising to $120 over the next couple of days," said Michael Hewson, a market analyst at CMC markets.
Last week Brent crude futures rallied to 2-1/2-year peaks on disrupted supply from Libya, but fell back as a reported boost in Saudi Arabian output was expected to fill in for the loss of Libyan oil.
Libya's normal 1.6 mln barrels per day (bpd) output has been cut by around half, the chairman of its National Oil Corporation said on Tuesday, in line with an emerging consensus production has dropped by around 800,000 bpd.
Two Greek tankers left the Libyan port of Es Sider on Tuesday although concerns about potential violations of recently imposed U.S. sanctions against Libya left a cargo sitting off the coast of Texas and Louisiana in the United States.
The market is wary of the spread of similar pro-democracy revolts in the Middle East, which holds more than 60% of the world's reserves.
Governments in Yemen, Oman, Iran and Iraq have had clashes with protesters over the past fortnight as popular unrest has spread in the region.
"As long as the Middle East tensions continue, the fear is that there may be supply disruption," said Ryoma Furumi, a commodities sales manager at Newedge Japan.
STRONG U.S. DEMAND
Oil also received a boost from a surprise fall in U.S. crude inventories on lower imports while gasoline stockpiles were down sharply, industry data showed.
A Reuters poll forecast that crude inventories rose 700,000 barrels, distillate stockpiles fell 1.2 mln barrels and gasoline supplies dipped 400,000 barrels.
"The truly bullish figures, though, were in demand — with implied distillate demand at 4.705 mln bpd and implied demand in gasoline coming in at the blistering pace of 10.172 mln bpd," Peter Beutel, president of U.S. trading advisory Cameron Hanover, said in a March 1 note.
