Brent crude jumped by more than $1 to stand above $116 on Friday on fears of rising geopolitical tensions in the oil-rich Middle East and North Africa, after the U.N. approved military action to curb Libyan leader Muammar Gaddafi.
Front-month Brent rose $1.24 to $116.14 at 12:38 a.m. ET, after earlier touching a high of $116.50, while U.S. crude rose $1.60 to $103.02.
Last week's devastating earthquake in Japan, the world's third-largest oil consumer, shattered confidence across world markets and sent Brent to a three-week low near $107 two days ago.
But prices have recovered since then and are now less than $4 away from a 2-1/2-year high of almost $120 reached on February 24, when an uprising against Gaddafi shut down at least two-thirds of the country's oil output.
The initial shock in the markets with regards to the negative impact on growth as well as the short-term effect on Japanese demand is now subsiding and people are turning to the medium- and long-term implications of the earthquake on oil demand and turmoil intensifying in the Middle East, said Yingxi Yu, a Singapore-based commodities analyst with Barclays Capital.
The involvement of foreign forces could prove to be a further escalation of the situation in Libya. It seems difficult that this will speed up the flow of Libyan oil back into the world market, Yu added.
The United Nations authorized military strikes to curb Libyan leader Gaddafi, hours after he threatened to storm the rebel bastion of Benghazi overnight, showing no mercy, no pity.
Earlier this week, Bahraini forces cracked down on Shi'ite protesters demanding reform by the Sunni monarchy, which drew criticism from key Bahraini and Saudi ally the United States.
The involvement of Saudi Arabian troops and other forces from Gulf Cooperation Council countries also raised the stakes of confrontations in the island state, which lies less than 100 kilometers from the hub of the Saudi oil industry.
Events over the past week suggest that something profound has changed in the dynamics of the region, Yu said.
The relation between the U.S. and Saudi Arabia has been the key foundation of the oil market for many decades. Recent events seem to be creating some stress on the relationship.
Saudi Arabia's King Abdullah will address the nation on Friday to issue a number of decrees, the royal court said in a statement released by the top oil producer's state news agency.
Saudi Arabia has mostly avoided the wide unrest that toppled rulers in Egypt and Tunisia and spread to other Gulf countries, but there are pockets of dissent in the absolute monarchy, which has no elected parliament. Most demonstrations have been in the east of the kingdom, where the world's largest oil reserves are located.
(Editing by Himani Sarkar)