Oil prices surged the most in three weeks on Friday, with Brent jumping $4 a barrel to a 32-month high as a sinking dollar triggered a fresh rush of fund buying across the commodities spectrum.

U.S. crude topped $113 but trailed Brent, which closed out its best weekly gain since February. Deepening violence in Libya and concerns about unrest in Saudi Arabia and Nigeria lent new impetus to a rally that is threatening to crimp global growth and add to growing inflation concerns.

Analysts said Friday's sharp gains in oil, wheat, copper and gold -- while stocks slipped -- stemmed from a big wave of second-quarter investment. Oil drew extra support from fears that the war in Libya was starting to inflict lasting damage on the oil sector.

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.

ICE Brent crude for May rose $3.98 to settle at $126.65 a barrel, highest settlement since July 2008. It reached $126.91 in post-settlement trading.

U.S. crude rose $2.49 to settle at $112.79. It reached $113.20 post-settlement, the highest intraday price since September 2008.


The dollar index <.DXY> measuring the greenback against a basket of currencies weakened as the euro jumped to a 15-month peak against the dollar following the European Central Bank's interest rate hike.

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.

Brent's 14-day Relative Strength Index, a technicians' measure to gauge whether a contract is overbought or oversold, approached 80 -- a level only hit three times before and never surpassed, according to Reuters data. U.S. crude trading volumes above 600,000 lots neared the 30-day average, rebounding from late March when activity hit the lowest this year.


In addition to the Libyan conflict, investors eyed protests in top oil exporter Saudi Arabia and unrest in Syria, Yemen and attacks intended to interfere with elections in OPEC-member Nigeria, which produces 1.9 million barrels per day of oil.

Libya's civil war has cut the 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.

(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 David Gregorio)