Brent crude rose towards $114 a barrel today as Sunni militants pushed forward in northern Iraq, striking a key refinery near Baghdad and stoking worries about oil exports from the key producer.
The rapid advance of militants in northern Iraq has led oil companies to pull foreign staff out of the country, fearing violence could spread to major oilfields concentrated in the south.
Further increasing tensions, Iranian President Hassan Rouhani said his country would not hesitate to defend Shi'ite holy sites in neighbouring Iraq.
Brent rose 20 cents to $113.65 a barrel while US crude gained 35 cents to $106.71 a barrel after a draw in domestic stocks.
Worries about disruption to Iraq's supply drove up both benchmarks by more than 4% last week, the biggest weekly jump since July for Brent and since December for US crude.
Sunni militants today renewed their attack on Iraq's biggest oil refinery, Baiji, with machine-gun fire and mortars. The plant north of Baghdad has been shut and its foreign staff evacuated, although refinery officials said local staff remain in place and the military is in control of the facility.
Iraqi officials say the southern regions that produce some 90% of the country's oil are completely safe from the Islamic State of Iraq and the Levant (ISIL).
But the International Energy Agency (IEA) said Iraq's oil output target of 4 million barrels per day by the end of the year looks increasingly at risk, just as demand is picking up due to a stronger global economy.
US crude was supported by data from industry group American Petroleum Institute (API) showing crude stocks fell by 5.7 million barrels last week to 378.2 million, compared with analysts' expectations for a drop of 650,000 barrels. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 255,000 barrels, the API said.
Oil investors will also keep an eye on the outcome of the Federal Reserve's policy meeting later this evening. The Fed is widely expected to shave another $10 billion from its monthly bond purchases, which have supported commodity prices by injecting extra liquidity.