Oil rose over $1 on Wednesday 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 94 cents to $114 a barrel at 1320 GMT as Libyan forces loyal to Muammar Gaddafi closed in on rebels in the western city of Zawiyah and an area around Es Sider oil terminal was hit by an air strike.
Brent had earlier pushed to an intraday high of $114.39 following news that the heavy fighting had forced the shut down of the Zawiyah refinery.
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 guerilla 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 market 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 oil output.
Leading OPEC producer Saudi Arabia is already pumping more oil -- up to 9 million barrels per day (bpd).
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 that supply was not necessarily the issue, it was more the perception that if unrest in the Middle East spread, it could affect Saudi Arabia, or its ability to raise supply if the need arises.
The Saudi Foreign Minister Prince Saud Al-Faisal, speaking at a news conference on Wednesday, said Muslim clerics had banned demonstrations in Saudi and that dialogue was the best way to achieve what Saudis wanted.
U.S. crude was up 18 cents at $105.20 after earlier reaching an intraday high of $105.38.
World powers are 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.
In a statement, the exiled Libyan Crown Prince Mohammed El Senussi asked for a no-fly zone over Libya and strikes against Libyan leader Muammar Gaddafi's air defenses but did not support foreign troops on the ground.
Speaking earlier in the day, Gaddafi said that the Libyan people would take up arms against Western powers if they tried to enforce a no-fly zone.
The Pentagon said that the United States was still looking at a range of military options on Libya. Libyan oil trade has been virtually paralyzed as banks decline to clear payments in dollars due to U.S. sanctions.
U.S. crude inventories climbed a larger-than-expected 3.8 million barrels in the week to March 4, the American Petroleum Institute (API) said on Tuesday, ahead of EIA statistics due on Wednesday at 1530 GMT.
Saudi Basic Industries Corp (SABIC) said that growth in demand for petrochemicals this year should match 2010 levels, led by Asia and the Middle East, despite higher oil prices.
(Additional reporting by Alejandro Barbajosa, editing by William Hardy)