The U.S. bank said initial reports suggested companies had already shut onshore production, and it estimated as much as 1.2 million barrels per day (bpd) of crude oil may have been shut down in the country.

"With Libya apparently at risk of a civil war, there are reasons to believe that oil supplies in that country could be off for months," it said in a note to clients, received by Reuters on Monday.

It said Libya's oil infrastructure was on the eastern side of the country and could be prone to attacks by either supporters of Muammar Gaddafi or opposition forces, "creating the risk of a prolonged output loss."

The bank said it saw substantial upside risks to Brent crude oil prices over the next few months and that its forecasts for oil prices were "skewed to the upside."

"The combination of a substantial run-up in demand coupled with a very severe supply shock makes a spike and crash scenario increasingly likely for global oil prices and the world economy," it said.

"In our opinion, if Brent crude oil prices hold at around $110-$115 per barrel in 2011, energy as a percentage of GDP would remain close to record levels, suggesting that the point of demand destruction is in short sight."

The bank estimated that a 10 percent increase in oil prices pushes down global oil demand by about 0.5 percent.

It said the oil market's ability to deal with further unrest in the Middle East remained very limited.