Brent crude held above $115 a barrel on Wednesday as U.S. lawmakers' support for military action against Syria revived concerns that Middle East oil supplies might be disrupted if the conflict widens.
President Barack Obama won the backing of key figures in the U.S. Congress in his call for limited strikes on Syria to punish President Bashar al-Assad for his suspected use of chemical weapons and Russia "does not rule out" approving a strike.
While Syria is not a big oil producer, investors are worried that a strike by Western forces against the country could spread unrest in the Middle East and disrupt supply from the region that pumps a third of the world's crude.
Brent crude was at $115.23, down 45 cents by 1209 GMT. U.S. crude fell 57 cents to $107.97 a barrel.
"We believe a limited U.S. strike, if indeed realised this month would only see a temporary spike provided no supply disruptions elsewhere," said Andrey Kryuchenkov of VTB Capital.
"In the meantime, it's back to diplomacy," he added.
Kryuchenkov sees Brent's upside limited near $117 and then key resistance between $119-$120. On the downside, the market is supported at $109.
Middle East tension could also widen Brent's premium to U.S. crude to more than $10 a barrel, from $7.45 now.
Investment bank Goldman Sachs says a limited strike would push up crude, but argues that Brent is unlikely to exceed $125.
"Brent prices above a level of around $125 are unsustainable in our view, as OECD strategic petroleum reserves (SPR) act as significant spare capacity," said the bank's analysts, led by Jeffrey Currie.
"We believe (the recent price rise) mostly reflects the events in Syria and less the increasing fundamental tightness driven by significant supply shortfalls in both Iraq and Libya, which further skews the risk to the upside."
Markets are already coping with a supply loss from OPEC producer Libya as strikes at ports and pipelines have shrunk exports to around 80,000 barrels per day (bpd) - less than a tenth of capacity.
Outages from the Middle East and Africa rose above 3 million bpd, some 3.5 percent of global demand.
Sudan's decision to lift a threat to block oil exports from South Sudan provided some relief, although Juba's output at 200,000 bpd remained lower than before the conflict shut its entire production.
The pressure on OPEC's spare capacity could peak in September on lower exports from Libya and Iraq, coinciding with a likely drop in total OECD petroleum inventories to their lowest since mid-2004, said Goldman Sachs.
Oil supply has become as tight as when the International Energy Agency ordered a rare release of strategic oil reserves during Libya's civil war in 2011, raising talks of possible action from the OECD energy watchdog.
U.S. commercial crude oil and gasoline inventories likely fell last week, a preliminary Reuters poll showed. (Additional reporting by Florence Tan in Singapore; editing by Keiron Henderson and James Jukwey)