Brent crude jumped to a 32-month high above $125 on Friday as commodities climbed in unison on a weaker dollar after attacks on Libyan oil fields made long-term supply cuts more likely.
Brent was poised for a fourth consecutive weekly gain, and its 5 percent rise would be the largest percentage rise since the week to February 25.
In addition to the Libyan conflict, ongoing unrest in the Middle East and bomb attacks intended to postpone Nigerian elections added to oil supply concerns.
Brent crude for May rose $2.71 to $125.38 a barrel by 11:50 a.m. (1550 GMT), having hit $125.79, the highest front-month price since August 2008.
U.S. crude rose $1.43 to $111.73 after earlier reaching $111.90, the highest intraday price since September 2008.
U.S. crude trading volumes lagged Brent near midday Friday in New York. U.S. crude volumes the previous two weeks were the lowest weekly volumes for 2011.
Troubles in Libya mean Gaddafi has caused damage to the Sirte basin, which has about two-thirds of their oil. There's dollar weakness and some very large fund action piling into the market in oil and base metals, said Rob Montefusco, an oil trader at Sucden Financial.
Libya's civil war has cut its normal output of 1.6 million barrels per day (bpd) by 80 percent to between 250,000 and 300,000 bpd, according to a senior government official.
NATO leaders have acknowledged the limits of their air power, with analysts predicting a drawn-out conflict.
Libya's fellow OPEC member Nigeria, which produces 1.9 million bpd, postponed parliamentary elections again in some areas, although polls will go ahead in most of the country on Saturday as planned.
Upcoming elections in Nigeria have already seen an uptick in violence in the oil rich states of Akwa Ibom and Balyesa, with any loss in Nigerian crude (similar in quality to Libya) likely to put further pressure on light-heavy differentials, said Barclays Capital analyst Amrita Sen.
Crude prices rallied in step with gains across the commodities markets, where gold hit a record high, driven by a weaker dollar and a positive global outlook despite Portugal's request for a bailout earlier this week.
A weaker dollar often lifts dollar-denominated commodities because they become attractive as a hard-asset inflation hedge and demand can be stoked by cheaper prices for consumers using other currencies.
New investment flows at the start of the quarter are driving oil and gold this morning, with the strong rise over the past week attracting trend followers and more fund money, said Michael Guido, director of hedge fund energy sales at Macquarie Bank in New York.
The uptrend is still very much intact, with key technical levels being taken out.
The surge in oil prices is stoking inflationary concerns worldwide due to the potential adverse impact on economic growth and the risk of demand destruction.
(Additional reporting by Gene Ramos and David Sheppard in New York, Nia Williams in London and Randy Fabi and Alejandro Barbajosa in Singapore; editing by Jeffrey Benkoe)