Oil prices rose on Friday, with Brent crude nearing $118, as investors anticipated U.S. payrolls data later in the session will confirm the improving economic outlook of the world's largest oil importer.

Fighting in Libya, where Muammar Gaddafi's forces appear to have regained the upper hand, supported crude prices as the prospect of a drawn-out conflict reduced expectations of lost Libyan oil returning to the market in the near future.

Further supply disruption came from Gabon, which produces between 220,000 and 240,000 barrels a day, where striking workers are shutting half the central African nation's crude oil output on Friday and plan to halt the remaining output within 48 hours.

Brent futures for May delivery rose 29 cents to $117.65 by 1111 GMT, after earlier hitting the highest level since March 7. U.S. crude futures climbed 49 cents to $107.21, down from a peak of $107.65 last hit in September 2008.

I think we are going to be range trading ahead of the payroll data but if it proves strong we could see oil advance further, said Christin Tuxen, an analyst at Danske Bank, adding she expected Brent to trade between $110 and $125 a barrel in the second quarter of 2011.

A lot in the oil market depends on what happens in the Middle East but our analysts see a fairly broad based global (economic) recovery and we should see commodities edge higher in general, she said.

Oil prices gained traction in the second half of this week after a report on Thursday showed U.S. jobless claims fell last week and data pointed to improving employment in the Midwest.

A Reuters poll suggested the U.S. non-farm payrolls data for March, due at 1230 GMT, would show a second straight month of solid job growth, adding 190,000 jobs. A rise would imply the labor market has turned a corner after lagging the broader economic recovery.

While improving economic performance is lifting industrial demand for energy in the U.S., high prices at the pump are damaging consumer confidence and capping gasoline demand.


Libyan rebels cheered the defection of the foreign minister on Thursday as a sign Gaddafi's rule was crumbling, but U.S. officials warned he was far from beaten and made clear they feared entanglement in another war.

Rebel officials set out conditions for any ceasefire on Friday, including that the Libyan leader's forces quit cities in the west and give people freedom to speak out.

Analysts warned it was doubtful Libyan crude would reach world markets on a sustained basis because of the risk of loading cargoes and said recent advances by government troops were bullish for oil prices.

Bahrain has stepped up arrests of cyber activists and Shi'ites and investors will also keep a close eye on events in Syria and Yemen. The conclusion of Friday prayers is a favored time for demonstrations in the region.

Friday prayers in the Middle Eastern world are a special time when protests gather momentum, said Eugen Weinberg, commodities analyst at Commerzbank. That should prevent a steep decline in oil prices even if payrolls prove disappointing.

Reuters technical analysis suggests Brent will continue to rise toward $119.79 as a short-term uptrend pointing to $123.46 per barrel has been established, although there is a minor resistance zone between $118.37 and $118.50.

(Additional reporting by Alejandro Barbajosa; editing by Keiron Henderson)