Oil prices rose on Wednesday as dealers tracked fresh violence in Iraq -- where militants have attacked the nation's main refinery -- and awaited the US Federal Reserve's latest monetary policy decision.
Brent crude for August delivery added three cents to $113.48 per barrel just after midday.
US benchmark West Texas Intermediate for July delivery reversed 41 cents to $106.77 a barrel.
“Brent crude has strengthened, driven by continued supply fears deriving from ongoing and escalating violence in Iraq," said Dorian Lucas, an analyst at British-based energy consultancy Inenco.
"Brent crude could see further gains intraday as news emerges that one of Iraq’s largest oil fields is under siege by Islamist led militants; already having withstood mortar and machine gun fire.
"It is reported that so far the siege has resulted with the destruction of some oil stores, the full extent of which is not yet apparent."
- Baiji refinery under attack -
Militants attacked Iraq's biggest oil refinery on Wednesday, as Prime Minister Nuri al-Maliki scrambled to regain the initiative by sacking security commanders and reaching out to political rivals.
The crisis, which has displaced hundreds of thousands of Iraqis, threatens to carve up the country while the assault on the Baiji oil refinery early Wednesday will likely further spook international oil markets.
From about 4:00 am (0100 GMT), clashes erupted at the refinery complex in Salaheddin province, north of Baghdad.
The United States, which is mulling air strikes against the insurgents, said it believed Baghdad's security forces were rallying against the assault, while Iran pledged not to let Shiite shrines in Iraq fall to the Sunni Arab militants leading the charge.
The Iranian vow follow a call by top Shiite cleric Grand Ayatollah Ali al-Sistani for Iraqis to volunteer to resist the onslaught spearheaded by the jihadist Islamic State of Iraq and the Levant (ISIL), who hold the major cities of Mosul and Tikrit and are fighting north of the capital.
"Today's militant attack on Iraq's main refinery in Baiji risks cutting off supply of gasoline and diesel to northern Iraq and also provides a source of fuel for ISIL and its supporters," said Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor.
"The impact to global supply from the attack in Baiji is limited, however, if the ISIS forces continue to make progress towards Baghdad and onto Iraq’s main oilfields in the south, the current oil price stabilisation is likely to be short lived and we could see a significant spike in oil prices."
Iraq is the second-biggest oil exporter in the 12-nation Organization of Petroleum Exporting Countries (OPEC), after Saudi Arabia.
- Fed decision awaited -
Later on Wednesday, traders will digest the Federal Reserve's latest monetary policy decision, as well as weekly data on US oil inventories.
Singapore's United Overseas Bank said trading "will be dominated" by the Fed's outlook statement to be released later Wednesday after a two-day meeting of its key decision-making body.
The US central bank is largely expected to maintain its current policy of keeping federal funds rate at zero, and steadily cutting back its stimulus programme.