Oil prices jumped this evening due to escalating violence in the Middle East and worries about oil supply from the region but retreated later on fears Japan's nuclear crisis was spinning out of control.
Brent crude retreated after rising by more than $3 earlier in the session after the European Union Energy Commissioner Guenther Oettinger told the European Parliament that the situation at the troubled Japanese reactor was effectively out of control and potentially catastrophic.
Brent for April was up $2.21 at $110.73 a barrel, rebounding from a three-week low on Tuesday. US crude futures were up 95 cents at $98.13 a barrel around the same time, off highs of $99.6 a barrel.
Escalating violence in the Middle East redirected the focus of attention on the oil-producing region today, supporting oil prices.
A crackdown on protesters in Bahrain, where Saudi troops have intervened, resulted in at least four deaths, according to hospital sources, while clashes intensified in the streets of Yemen, Syria and Algeria.
Iran also chimed in with President Mahmoud Ahmadinejad quoted by state television condemning Bahrain's crackdown on mainly Shi'ite protesters as unjustifiable.
Muammar Gaddafi's advance in Libya added to uncertainty today, as traders speculated whether the West would take measures resulting in prolonged loss of Libyan oil supplies.
Analysts say it remains unclear whether the earthquake in Japan will ultimately result in an increase or decrease in oil demand.
An expected increase in Japanese demand for gasoil and fuel oil for power generation to replace some of the nuclear capacity lost following Friday's earthquake and tsunami has not yet materialised.
Reconstruction efforts and the increased need for non-nuclear fuel is forecast to boost Japanese oil burning by around 500,000 barrels per day, a report published by the JBC Energy Research Centre showed.
But oil shipments to Japan so far have not been significantly affected, a top shipping industry group said on Wednesday.
US crude oil futures gained after a larger-than-expected drop in petrol stockpiles reported by the US Energy Information Administration (EIA) pulled petrol inventories to the lowest level since the week to January 7.
But the build in crude oil stocks exceeded forecasts, with inventories rising by 1.75 million barrels according to the EIA report, compared to a 1.3 million-barrel gain expected by analysts.
