A sign of what's yet to come? Oil prices jump on Russia's threat to invade Ukraine
"Oil markets are reacting on the potential that the situation could worsen," said Ben le Brun.
Crude oil prices jumped more than $2 a barrel to multi-month highs, lifted by rising tension in Ukraine after Russian President Vladimir Putin declared he had the right to invade his neighbor.
Ukrainian Prime Minister Arseny Yatseniuk said Moscow's move to use military force was a "declaration of war" by Russia, one of the world's biggest oil producers.
Analysts say Russian supplies of oil to the rest of the world are unlikely to be disrupted by the Ukraine crisis but oil prices rose as most financial markets tumbled, with investors pulling out of riskier assets such as stocks.
Putin secured permission from his parliament on Saturday to use military force to protect Russian citizens in Ukraine and told US President Barack Obama he had the right to defend Russian interests and nationals, spurning Western pleas not to intervene.
Brent crude hit a peak of $111.41 per barrel, its highest since Dec. 31, and was up $1.70 at $110.77 by 0900 GMT.
US crude jumped as much as $2.06 to $104.65 a barrel, the highest since Sept. 23, before easing to $103.85.
"This is all about risk to supplies," said Commerzbank senior oil and commodities analyst Carsten Fritsch in Frankfurt.
"Russia is one of the world's largest oil producers, a huge exporter, and very important to Europe for its energy security."
Ben Le Brun, market analyst at OptionsXpress, agreed:
"Oil markets are reacting on the potential that the situation could worsen," he said.
"But I definitely suspect oil will move much higher, if it actually comes to war. US crude could easily surpass $110 and a $120 target is not out of the question."
The stand-off raised concerns over disruptions of Russian natural gas supplies to Europe, which would see a rise in demand for alternative fuels such as heating oil. The European Union gets roughly a quarter of its gas supply from Russia, mostly piped through Ukraine.
A relatively mild winter in Europe has reduced demand for heating fuel, with storage about 20 percent above last year's level at the main European gas hubs.
Russia exports around 5.5 million barrels of crude oil per day. Piped gas exports beyond the former Soviet Union totaled 15.8 billion cubic meters in January, official data showed.
Global Risk Management analyst Michael Poulsen said it was likely that oil prices would increase slightly further before stabilizing in the short term "before slowly retracing".
Obama and the leaders of Britain, Germany and Poland expressed "grave concern" on Sunday over Russia's intrusion into Ukraine, calling it a breach of international law and a threat to international peace and security.
The tensions come at a nervous time for markets as activity in China's factory sector slowed to an eight-month low in February, a government survey showed, reinforcing signs of a modest slowdown in the world's No. 2 economy as demand weakens.
The situation in Ukraine pressured Asian stocks on Monday, forcing anxious investors to cut their exposure to riskier assets in favor of traditional safe-haven bets such as the Japanese yen and Swiss franc.
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