Oil prices hit $96.08 a barrel in the US because of concerns over Libya oil disruptions. Then oil prices retreated a bit.
Violent clashes in Libya have resulted in at last three oil companies halting output in Africa's third-largest producer, which pumps 1.6 million barrels per day (bpd), or nearly 2 percent of global supply.
The disruptions mark the first reduction in oil supply stemming from a wave of protests that have swept through the oil-producing Middle East and North Africa. Investors fear for the potential impact on the flow of oil from top exporter Saudi Arabia if it suffers similar unrest.
U.S. crude rose as high as $96.08 a barrel, the highest level since October 2008. By 0459 GMT, the April contract had trimmed gains to trade at $95.48, up 6 cents on the day.
Brent crude rose 58 cents to $106.36 a barrel, after rising as high as $106.58 earlier. On Monday, Brent hit a 2-1/2-year high of $108.70.
"Even if Libya completely shuts down, there isn't a supply issue. But the (U.S. crude) could go to $100, given the potential for this contagion to spread to Saudi Arabia," said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.
To date, protests in Saudi have been low key. But majority Shi'ites in neighbouring Bahrain are protesting against the Sunni-led government and there is concern this could spill over to the Shi'ite minority living in Saudi Arabia's oil-producing eastern province.
A pipeline pumping Libyan gas to Italy was also closed, and operations at Libya's export terminal operations disrupted. Libyan leader Muammar Gaddafi has refused to step aside despite the growing revolt and threatened tougher action against protesters in a defiant speech on Tuesday.
Most European product prices extended gains on Tuesday, with traders reporting Libya had declared force majeure on fuel shipments from some ports, while others said cargoes were loading as normal.
"The global economy is more fragile now than it was in 2008. Growth has been driven by stimulus packages and austerity measures. I don't see it being able to absorb a rise to $140 like it did two years ago," Barratt said.
Brent crude has risen more than 13 percent so far this year. U.S. crude is up over 2 percent on the year, but is over $50 below its 2008 high of $147.27.
"Given the speed at which events are unfolding, we do not rule out a further spike of $20/bbl or beyond in the coming weeks if the unrest disrupts output," ANZ commodities analysts, Serene Lim and Mark Pervan, wrote in report.
Brent oil could revisit its Monday's high of $108.70 a barrel while he sees U.S. crude head to $97.33 a barrel in the next 24 hours, according to Reuters market analyst Wang Tao.
NO MORE CRUDE FROM SAUDI
Top exporter Saudi Arabia on Tuesday stopped short of pouring more oil on to markets, telling visiting consumer nations prices were driven by fear.
The kingdom could ramp up its oil production enough within one month to replace all of Libya's crude exports if growing strife in the African nation cuts off its oil shipments, a senior U.S. government energy official said on Tuesday.
Saudi Arabia supplies around 10 percent of the world's oil, but also holds most of the world's spare capacity. It is the only producer able to respond quickly with large volumes of oil to compensate for a serious supply outage.
IEA member states would consider releasing oil from their emergency stocks if supplies were disrupted as a result of continuing turmoil in the Middle East, Birol said.
The IEA is adviser to 28 industrialised nations on energy policy.
A rise in Japanese crude oil stocks and an expected increase in U.S. inventories could also ease supply concerns, analysts said.
Asian stocks were flat to slightly lower on Wednesday, following Wall Street's worst performance since August on concerns over the turmoil in Libya.