Oil prices rose over $2 on Thursday, led by Brent which was heading for its second biggest quarterly rise, touching $117.70 a barrel as Middle East supply worries led concerns.
U.S. crude prices rallied to within 18 cents of its year high of $106.95, now the only major technical barrier to a larger move higher, according to analysts.
Oil prices built on early gains after U.S. data showed jobless claims fell a four-week low and the second lowest since July 2008, after prices had turned higher on unrest in the Middle East near the start of the session.
The twin shocks of Libya and Japan have broadly been priced in, and the volatility can be attributed to oil returning to its pattern of moving on bullish economic news, said Simon Wardell, an oil analyst at Global Insight.
Brent crude for May was up $2 to $117.13 barrel at 1359 GMT, within sight of a 2-1/2-year high near $120 on February 24. Brent had fallen below $108 in the aftermath of Japan's March 11 earthquake and tsunami, but is now on course to finish the quarter over 23 percent higher.
U.S. crude was up $1.96 to $106.23, heading for a near 16 percent quarterly gain.
Traders, analysts and investors see a new floor for prices around $100 a barrel, supported by supply risks and economic growth after the most turbulent and volatile quarter for the oil market since the end of 2008.
WAR IN LIBYA
The prospect of a protracted civil war in Libya remained as forces loyal to Libyan leader Muammar Gaddafi regained key oil ports at Ras Lanuf and Brega on Wednesday, underscoring the vulnerability of rebel forces in the absence of Western air strikes.
Gaddafi's foreign minister defected and flew to Britain on Wednesday, while government sources told Reuters that U.S. President Barack Obama had signed a secret order authorizing covert U.S. government support for rebel forces.
Market attention was also focused on Bahrain, where dozens were missing and more than 300 were detained after a crackdown targeting activists and Shi'ites, the opposition said on Thursday.
Friday prayers may be a key issue supporting the market now, and some of the focus is starting to shift back to Japan and the cost of rebuilding the country, said Thorbjoern Bak Jensen, an analyst at Global Risk Management.
In recent months, the end of Friday prayers has been a favored time for protests in the region.
Worries also mounted about Syria, where more than 60 people have died in protests, after the president defied calls to lift a decades-old emergency law and hundreds marched in Latakia on Wednesday.
In Yemen, the president's 32-year rule edged closer to collapse after his efforts to appease protesters were snubbed by the opposition.
Lost nuclear power and reconstruction efforts could boost Japanese demand for oil to generate electricity. The International Energy Agency has said an additional 200,000 barrels per day will be needed after Japan's nuclear disaster. But traders say the impact on world supply could be higher.
A parcel bomb attack on a nuclear lobby group in Switzerland highlighted the backlash against nuclear development plans in the aftermath of the Japanese disaster at Fukushima.
The nuclear issue in Japan could have quite significant consequences. A lot of countries are now debating nuclear and new building is on hold, a gasoil trader said.
But others say lower Japanese output could ultimately weaken imports, balancing against a further drop in oil supply from the Middle East.
There seems to be a statistical surplus in the system given that Saudi production has more or less offset the Libyan shortfall, while weak Japanese imports will go a long way in further alleviating demand pressures, Edward Meir, senior commodity analyst at MF Global, said in a note.
(Additional reporting by Nia Williams, Claire Milhench and Alejandro Barbajosa; editing by Keiron Henderson)