Crude oil rose on Friday, with Brent pushing toward $116 a barrel, as Libyan security forces began a violent crackdown on protesters in Tripoli and clashed with rebels near the major oil terminal of Ras Lanuf.
Al Jazeera television also reported that an oil facility at Zueitina, south of Benghazi was damaged and on fire.
By 1448 GMT (9:48 a.m. EST), Brent crude futures for April delivery were up 87 cents to $115.66 a barrel, after earlier touching $116.30. U.S. crude futures for April rose $1.27 cents to $103.18 a barrel.
The intraday peak was $103.57, the highest since front-month crude hit $106.91 on September 29, 2008, eclipsing $103.41 reached on February 24.
Tension in the Middle East is like a runaway train, said Michael Hewson, an analyst at CMC Markets. Once it starts it's very difficult to stop. And if there is a danger that it impacts the supply chain, people will understandably get nervous.
Libyan security forces fired shots and used tear gas to disperse a protest against Muammar Gaddafi's regime in the capital Tripoli. Demonstrators began the protest in the city's eastern district after Friday prayers.
Meanwhile, rebels advanced on the major oil terminal of Ras Lanuf, clashing with forces loyal to Gaddafi.
The head of Libya's rebel National Libyan Council vowed Victory or death, in a short speech in the town of Al Bayda in the rebel-held east of the country.
A rebel spokesman told Al Jazeera rebel forces will attack Tripoli once a no-fly zone is enforced by international powers. He added rebel forces had repelled an attempt by Gaddafi forces to seize control of Brega airport in the rebel-held east.
Barclays Capital analysts said in a note the chances of a swift resolution in areas of tension had reduced considerably.
Libyan oil is likely to be lost to the market for an extended period, tying up considerable amounts of replacement oil in much longer supply chains, and events in Nigeria, Iraq, Iran and Bahrain are likely to provide a continuing backdrop of headline risks, they said.
Investors and traders have been tracking the civil unrest in North Africa and the Middle East for any sign that Saudi Arabia, OPEC's leading oil producer, would be affected.
On Thursday Saudi Shi'ites staged protests in two towns in its oil-producing Eastern Province, demanding the release of prisoners they say are being held without trial.
Saudi Arabia is the main risk in the region, said Christophe Barret, global oil analyst at Credit Agricole Corporate and Investment Bank.
It has all the spare capacity, and if there is unrest and production disruption, then it means an explosion in oil prices. But I think the risk is an exaggeration.
He argued there were always problems between the Shi-ites and the Sunnis. I don't think it will go like Libya, but the Eastern Province is a significant oil-producing province of Saudi Arabia, so that is why everyone is looking at it.
Unrest continues in other parts of the region. Iraqi security forces used water cannon and batons to disperse protesters in the southern oil hub of Basra as thousands of Iraqis rallied around the nation against corrupt officials and poor basic services.
In Yemen, hundreds of thousands protested against President Ali Abdullah Saleh, who rejected an opposition plan for him to transfer power by the end of 2011.
And in Bahrain several people were reported hurt in fighting between Sunni and majority Shi'ite Muslims.
Libya's oil output has fallen to 700,000-750,000 barrels per day (bpd) from normal levels of 1.6 million bpd as most foreign oil workers have taken flight, according to Shokri Ghanem, the head of Libya's state-owned oil company.
(Additional reporting by Florence Tan and Robert Gibbons, editing by Jane Baird)