Oil rose by more than $3 on Wednesday to over $116 a barrel as fighting intensified in Libya, and an OPEC delegate said it saw no need to hold an emergency meeting to ease supply fears.
Brent crude oil futures for April were up $2.68 to $115.74 a barrel at 1603 GMT (11:03 a.m. ET) after forces loyal to Muammar Gaddafi hit storage tanks in the oil terminal of Es Sider, rebel fighters said.
At one point Brent was up by more than $3 to $116.18 a barrel in volatile trading.
U.S. crude was up 45 cents at $105.47 after reaching an intraday high of $105.92.
Fighting intensified in Libya on Wednesday as pro-Gaddafi forces and rebels tussled for control of key towns. The Libyan government and rebels accused each other of blowing up oil facilities in the east of the country after an oil pipeline leading to Es Sider was reportedly hit.
Gaddafi's forces are closing in on the rebel-held main square of Zawiyah, where fighting has led to the closure of one of Libya's biggest refineries.
NATO Secretary-General Anders Fogh Rasmussen said the alliance was not looking to intervene in Libya but its military was ready to respond at short notice.
Christopher Bellew, an oil trader at Bache Commodities in London, said the perception of prolonged trouble in Libya was driving the rally in oil prices.
As the outlook for Western intervention looks less likely -- which would bring things to a quick conclusion -- then we are looking at a prolonged struggle, he said.
Gaddafi might defeat his opponents gradually, or his opponents might end up going underground, fighting a guerrilla campaign which might involve them blowing up pipelines to try to hurt Gaddafi economically, he said.
Barclays Capital analyst Paul Horsnell was also skeptical about a swift return of Libyan oil to the market, even if the current government gets the upper hand.
We would expect Libyan oil to face a difficult and perhaps prolonged re-entry to the world market, he said in a note.
The oil price was also supported by comments from an OPEC delegate that the group saw no need at present to hold an emergency meeting to discuss raising its output.
The Algerian oil minister also said that there was no shortage of physical crude oil despite the disruptions in Libya and that OPEC would respond to any real shortage.
Leading OPEC producer Saudi Arabia is already pumping more oil -- up to 9 million barrels per day.
It's a fear trade, said Michael Hewson, an analyst at CMC Markets. It's about the fear of these troubles escalating -- there is some concern about how the Saudi Day of Rage will go on Friday.
He said supply was not necessarily the issue, but the perception that the unrest in the Middle East could affect Saudi Arabia, or its ability to raise supply if the need arises.
Saudi Foreign Minister Prince Saud Al-Faisal told a news conference on Wednesday that Muslim clerics had banned demonstrations in Saudi and dialogue was the best way to achieve what Saudis wanted.
World powers were still considering imposing a no-fly zone over the Libya, with UK Prime Minister David Cameron seeking international support for any measures to be taken.
Libyan oil trade has been virtually paralyzed as banks decline to clear payments in dollars due to U.S. sanctions though Austrian energy group OMV
The Energy Information Administration said that U.S. crude oil stocks at key delivery point Cushing, Oklahoma, had risen 1.69 million barrels week on week to a record 40.26 million barrels, but refined products, particularly gasoline, had fallen far more than forecast.
It was overall a bullish report, said John Kilduff, a partner at Again Capital in New York.
(Additional reporting by Alejandro Barbajosa and Janet McGurty; editing by Jason Neely)