Brent crude rose 0.8 per cent to $116 on Thursday, heading for its biggest quarterly gain in almost two years as war, revolutions, and unrest across the Middle East and North Africa thrust supply constraints to the forefront of investor concerns.
The global economic recovery also underpinned prices, although Japan's worst crisis since World War II triggered a dramatic reality check, resulting in the most turbulent and volatile quarter for the oil market since the end of 2008.
Brent crude for May advanced 87 cents on Thursday to $116 a barrel at 0626 GMT, less than $4 from a 2-1/2-year high near $120 on February 24. Brent plunged to below $108 in the aftermath of Japan's earthquake.
U.S. crude climbed 61 cents to $104.88.
Going forward, traders, analysts and investors see a new floor for prices around $100 a barrel, supported by supply risks and expanding economies. U.S. private employers added more than 200,000 jobs in March, a report showed on Wednesday, ahead of government data on March non-farm payrolls due on Friday.
"The second quarter is a good period, and oil demand should be increasing," said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments, adding that he expected U.S. crude to end the year close to $120.
"The world economy should be quite positive, especially after mid-May, and the downside for crude should be quite limited because of the geopolitical risk of disruption to supply in the Middle East and North Africa."
U.S. President Barack Obama has signed a secret order authorizing covert U.S. government support for rebel forces seeking to oust Libyan leader Muammar Gaddafi, government officials told Reuters on Wednesday.
The United States is part of a coalition, with NATO members and some Arab states, which is conducting air strikes on Libyan government forces under a U.N. mandate aimed at protecting civilians opposing Gaddafi.
Libyan Foreign Minister Moussa Koussa, one of Gaddafi's closest advisers and a former spy chief, defected and flew to Britain on Wednesday, a friend said.
Unrest in Libya erupted in February after revolutions toppled the leaders of Egypt and Tunisia in January, igniting protests against decades of autocratic rule in Syria, Yemen and Bahrain and minor demonstrations in countries including Morocco, Jordan, Algeria and Saudi Arabia, the world's top oil exporter.
As Saudi Arabia increased production partly to compensate for dwindling exports from Libya, concerns resurfaced that the kingdom's spare production capacity was shrinking, leaving world markets vulnerable to potential bigger disruptions.
RISKS TO DEMAND GROWTH
President Obama on Wednesday proposed to cut U.S. oil imports by a third over 10 years, a goal that eluded his predecessors and one seen as extremely ambitious by analysts skeptical it can succeed.
Japan's nuclear disaster has raised concern that growth in the world's third-largest economy may suffer. Japanese manufacturing activity slumped to a two-year low in March and posted its steepest monthly decline on record.
Workers struggling to prevent more radiation from escaping Japan's crippled nuclear plant face a hellish scenario -- with every attempt to get it under control seemingly creating life-threatening problems.
A final resolution of the nuclear disaster at the Fukushima Daiichi power station may take decades and experts say there could be further setbacks, after Japan's strongest earthquake on record and an ensuing tsunami hit the reactors on March 11.
The U.S. economy probably recorded a second straight month of solid job growth in March, adding 190,000 payrolls according to a Reuters survey, proof the labor market has turned the corner after lagging the broader economic recovery.
"There are growing expectations that number may jump higher given the U.S. market's recent spate of positive data releases," said Ben Taylor, a sales trader at CMC Markets in Sydney.
"If a good number is coming out, that should be positive for the dollar and push down commodity prices, but not very much; market sentiment should be getting better," Astmax's Emori said.
The accelerating recovery has yet to be reflected in the U.S. crude inventories, which last week rose more than anticipated, government data showed. Stockpiles at the Cushing, Oklahoma pricing point for benchmark West Texas Intermediate (WTI) soared to a record of 41.9 million barrels.
A larger-than-expected decline in U.S. gasoline stocks last week initially supported prices on Wednesday. Supplies have fallen by nearly 18 million barrels in the first four weeks of March, the biggest drawdown for the period since at least 1990.
Still, gasoline demand growth in the world's top user is not stellar. Consumption over the past four weeks fell 0.1 per cent from a year earlier as high prices took a toll on drivers, while in January demand fell by 1.3 per cent, the Energy Information Administration said on Wednesday.