Brent oil rose near $116 as fighting in Libya intensified on fresh reports of air strikes, raising fears that the crisis could spread to other oil producers in the Middle East.
A Libyan warplane bombed just beyond the walls of a military base held by rebels in the eastern town of Ajdabiyah today but did not hit it, just as rebels said they were preparing for counterattacks by forces loyal to leader Muammar Gadafy as both sides struggled for control of a strategic coastal road and oil industry facilities.
Venezuelan president Hugo Chavez said yesterday Col Gadafy had agreed to proposals for an international panel to negotiate an end to the turmoil in the world's 12th largest oil exporting nation.
But a rebel leader rejected talks, the response from the Arab League was lukewarm and energy analysts consulted by Reuters said they saw little chance any Chavez-backed plan would succeed.
"It is unrealistic. Nobody believes that Chavez's idea would be workable," said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments.
Brent crude futures for April delivery rose $1.13 to $115.92 a barrel by 0746 GMT.
US crude futures for April rose 89 cents to $102.80 a barrel. Both contracts are on track to post a second straight weekly rise.
The country's oil output has fallen to 700,000-750,000 barrels per day from normal levels of 1.6 million bpd as most foreign oil workers had taken flight, according to Shokri Ghanem, the head of Libya's state-owned oil company.
Kaustav Mukherjee, a director at the Boston Consulting Group, said: "Unless the (peace) plan lays out ways to address the core issues in Libya, it'll probably meet with a lot of publicity, but little else.
"I feel, more than the peace plan, the direction that UN sanctions could take in the long run will impact the economy of Libya more and consequently its oil industry."
Open interest in US crude futures has been on the rise in recent sessions, nearing record highs as bullish investors position themselves for further supply shocks.
That has also driven technical indicators into overbought territory with the relative strength indicator at 75 for Brent and 74 for WTI. A read above 70 denotes a market is overbought.
"Even if the conflict there were to be peacefully resolved - which seems a long shot - there are flash-points in Egypt, Tunisia, Yemen and Bahrain to consider," Peter Beutel, president of US trading advisory Cameron Hanover said in a March 3 note.
This has increased the pressure to liquidate positions at some stage although traders are likely to buy back on dips as the turmoil in the Middle East and Africa could last for months, Astmax's Emori said.
This would support prices above $100 and probably Brent will head to $150 a barrel within a year, he added.
That sell-and-buy back behaviour was very much in evidence yesterday when the initial news of the Chavez plan sent Brent sliding by more than $3 to a low of $113.09 in the space of an hour or so, but prices quickly recovered, and the market ended the day down $1.56.
A fall in US jobless claims to the lowest level in more than 2.5 years has also underpinned oil prices.
US nonfarm payrolls data due later are expected to have risen in February after being held down by extreme winter weather in January. Employment is expected to have increased by 185,000, which would be the largest gain in almost a year.
"If we start adding workers - and productivity continues to improve - it could be a remarkable achievement," Cameron's Beutel said.
"What worries us is how much more consumers have had to pay for oil since early September."
Reuters
