August 27, 2013 / 4:53 AM / 4 years ago

UPDATE 12-Brent hits 6-month high as West weighs strike on Syria

* West readying attack on Syria -sources

* Obama still considering options

* Libya’s oil production down by nearly 60 percent

* Coming up: EIA weekly inventory report Wed 10:30 am EDT (Updates with API data, spreads of U.S. crude contracts, paragraphs 7, 17-19)

By Anna Louie Sussman

NEW YORK, Aug 27 (Reuters) - Brent crude leaped to a six-month high on Tuesday, up more than $3 in heavy trading to top $114 a barrel as Western powers considered a military strike against Syria following last week’s suspected chemical weapons attack.

U.S. crude also gained more than $3 a barrel as fears mounted that Western intervention could further destabilize the Middle East, which pumps a third of the world’s oil.

Western officials told the Syrian opposition to expect a strike against President Bashar al-Assad’s forces within days, according to sources who attended a meeting between envoys and the Syrian National Coalition in Istanbul.

“As the rhetoric ratchets up around Syria, the geopolitical risk premium in the price of oil is once again widening,” Dominick Chirichella of Energy Management Institute said.

Brent crude notched its biggest daily percentage gain since October, rising by 3.3 percent to settle $3.63 higher at $114.36 a barrel. It hit a session high of $114.42.

U.S. crude rose rose $3.09 to settle at $109.01 a barrel. Its session high of $109.32 matched its high for the year so far.

Contracts for delivery in the remainder of 2013 jumped relative to contracts for delivery next year, indicating short-term supply concerns. The premium of the December 2013 U.S. crude contract to the December 2014 contract rose to around $12.50 a barrel.

While the White House ruled out any military effort to oust Syrian President Bashar al-Assad from power, oil market watchers pointed to signs that Washington and its allies are edging toward a limited use of force against the Syrian president’s loyalists.

White House spokesman Jay Carney said President Barack Obama had not made a decision on how the United States will respond to what it believes was an attack on civilians by the Syrian government.

On Monday, the United States put Assad on notice that it believes he was responsible for using chemical weapons against civilians last week in what Secretary of State John Kerry called a “moral obscenity.”

“There’s a lot of air in this market, and it’s now hungry for the next headline,” said Stephen Schork, the editor of The Schork Report in Villanova, Pennsylvania.

“So if we see more belligerent rhetoric, like Kerry’s ‘moral obscenity,’ we’re due for another leg up and you can’t really sell.”

French President Francois Hollande said his country stood “ready to punish” the perpetrators of a chemical attack in Damascus last week and would increase military support to the Syrian opposition.

Declining Libyan production also supported prices. Libya’s largest western oilfields closed when an armed group shut down the pipeline linking them to ports, its deputy oil minister said, reducing its oil output to a trickle.

Output is off nearly 60 percent to 665,000 barrels per day (bpd) due to a month-long disruption by armed security guards, who shut down main export terminals, its oil minister said.

In the United States, weak data in the past week on home sales and durable goods orders tempered views that the Federal Reserve could start paring its economic stimulus program as soon as September.

On Tuesday afternoon, the American Petroleum Institute reported that U.S. crude stocks rose last week while gasoline inventories declined and distillate stocks increased.

Data from the industry group showed crude inventories rose by 2.5 million barrels in the week to 366.591 million, much more than the 200,000 barrel increase analysts had expected.

Traders await the more closely watched inventory report from the U.S. Department of Energy’s Energy Information Administration due out Wednesday at 10:30 a.m. EDT. (Additional reporting by David Sheppard in New York, Peg Mackey in London, Florence Tan in Singapore; Editing by David Gregorio, Andrew Hay, Bob Burgdorfer and Marguerita Choy)

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