The price of oil soared to above US$102 a barrel Wednesday for the first time in over a year as Egypt's political crisis intensified, raising the risk of fuel supply disruptions in the Suez Canal.
A report showing an unexpectedly large fall in U.S. stockpiles of crude oil also helped boost prices.
By early afternoon in Europe, benchmark crude for August delivery was up $1.86 at $101.46 a barrel in electronic trading on the New York Mercantile Exchange, having risen as high as $102.18 earlier in the session. On Tuesday, the contract gained $1.61, or 1.6 per cent.
Embattled Egyptian President Mohammed Morsi vowed not to resign hours before a deadline to yield to the demands of millions of protesters or see the military suspend the constitution, disband parliament and install a new leadership.
The Islamist leader demanded that the powerful armed forces withdraw their ultimatum, saying he rejected all "dictates", from home or abroad. On the streets, the sense that both sides are ready to fight to the end sharpened, with clashes between Morsi's supporters and opponents killing at least 23 people, most of them in a single incident of fighting outside Cairo University.
Egypt is not an oil producer but its control of the Suez Canal, one of the world's busiest shipping lanes that links the Mediterranean with the Red Sea, gives it a crucial role in maintaining global energy supplies. The Middle East accounts for about a quarter of the world's crude oil output and over two million barrels of oil are transported through the Suez Canal daily.
During the first three months of 2013, 821 oil tankers and 152 ships carrying liquefied natural gas (LNG) passed through the Suez Canal.
The Suez Canal Authority, which operates the waterway, said it "has all the authorities needed for running the Canal without being limited by the laws and the systems of the (Egyptian) government."
Some analysts suggested market reaction to the political crisis in Egypt was exaggerated.
"Each time there is a bit of confusion in Egypt there will be calls that a geopolitical premium needs to be added to oil because of the risk to the Suez Canal," said Olivier Jakob of Petromatrix in Switzerland. "But if there is one thing that the military has control of in Egypt it is the Suez Canal. We therefore do not see a significant risk for free passage on the waterway."
The market reaction may have been heightened by other factors, such as signs that demand is growing. The American Petroleum Institute said Tuesday that U.S. crude inventories dropped by 9.3 million barrels last week, a much larger decline than forecast.