Brent oil futures rose above $110 per barrel on Thursday as the Algerian gas field hostage crisis fuelled concern over security of supply from the region.
Concerns about a weak global economic outlook and falling U.S. crude demand kept gains in check.
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Six foreign hostages and eight of their captors were killed when Algerian forces fired on a vehicle being used by besieged gunmen at a gas plant in the remote Algerian desert, a local source told Reuters.
"The market certainly expects that most of the international oil companies will withdraw personnel from oil and gas fields, affecting production," Christopher Bellew, analyst at oil brokerage Jefferies Bache said.
Brent futures rose $1.03 cents to $110.71 a barrel by 1432 GMT, after hitting a high of $110.89 a barrel. The February contract, which expired on Wednesday, settled 31 cents higher, while the March contract finished 5 cents up.
U.S. oil rose $1.10 cents to $95.34 a barrel.
Spanish oil company Cepsa has already begun to evacuate personnel in Algeria following the attack and Repsol was monitoring the situation.
Positive U.S. housing data provided an additional boost but overall economic sentiment remained subdued by worsening economic conditions in Europe, the ongoing uncertainty surrounding an agreement over the U.S. debt ceiling and forecasts of weak crude demand.
Worries about the global economy were revived on Wednesday after the World Bank cut its forecast for world growth in 2013 to 2.4 percent from its previous estimate of 3 percent.
A surprise fall in crude inventory in the United States, the world's biggest oil consumer, offered some support.
U.S. crude stocks fell by 951,000 barrels to 360.3 million barrels last week as imports dropped and fuel stocks rose, weekly data from the U.S. Energy Information Administration showed on Wednesday. Analysts polled by Reuters had expected stocks to rise of 2.3 million barrels.
"The decline in crude use has taken place from previously elevated levels that had been encouraged by good refining margins," BNP Paribas analysts said in a report.
Imports fell by 312,000 barrels per day (bpd) to 7.99 million bpd in the week. Gasoline supply rose by 1.91 million barrels, compared with analyst expectations for a 2.9 million barrel climb.
The International Energy Agency, adviser to 28 industrialised countries, issues its report on Friday.