Oil spikes to US$109 on drumbeat of war intervention

The price of oil climbed above $109 a barrel, its highest in more than two years, as the US appeared to edge closer to intervening in Syria's civil war.

US Defense Secretary Chuck Hagel said Tuesday that American forces were ready to act on any order by President Barack Obama to strike Syria in response to the alleged use of chemical weapons in the conflict. Secretary of State John Kerry said Monday that it was "undeniable" that the Syrian government used chemical weapons.

The US Navy has four destroyers in the eastern Mediterranean Sea within range of targets inside Syria. The US also has warplanes in the region.

US benchmark crude price rose as high as $109.32, matching its high for the year. That's the highest price since May 2011. Oil still remains a long way off its record high of $145.29 a barrel, set in July 2008.

It slowed marginally to US$108.97 at 3 pm Eastern time Tuesday.

The contract fell 50 cents, or 0.5 per cent, to close at $105.92 on Monday.

While Syria is not a major oil supplier, traders are concerned that the conflict may draw in Iran, a key ally of Syria and a big oil producer. The Middle East nation also shares a border with Iraq, another larger oil producer in the region.

syrian factions

"The issue, of course, is not Syria itself but certainly, factions within Syria that are clients of Iran," said Addison Armstrong, a director at Tradition Energy, an independent energy research firm.

The price of oil was also boosted Tuesday by reports that protesters stopped production at key oil fields in western Libya on Monday. The chairman of Libya's National Oil Corp, Nuri Berruien, said production in the North African nation had slumped to about 200,000 barrels a day, about an eighth of its capacity, according to Bloomberg News.

The price of oil is has surged more than 15 percent in the last three months on concern that civil war in Syria and unrest in Egypt could disrupt production and exports, especially in Libya and Iraq. The threat of spreading violence that could block important supply routes.

"The political uncertainty across Middle East has dominated the oil market in the last few months," said a report from Sucden Financial Research in London.

Brent crude, which sets prices for imported oil used by many US refineries, climbed to $114.28 a barrel on the ICE Futures exchange in London.