By Nia Williams Nia Williams
LONDON (Reuters) – Oil hit a 32-month high above $124 Friday after attacks on Libyan oil fields raised the prospect of long-term supply cuts, with commodities in general rising on optimism global economic recovery will fuel demand.
Ongoing unrest in the Middle East and concerns that postponed elections in Nigeria could spark a wave of militant violence and disrupt supply also contributed to the bullish mood in the market. By 1401 GMT Brent was up $1.84 to $124.51, after earlier climbing more than $2 to just below $125. U.S. crude climbed $1.05 to $111.35, down slightly from an intra-day peak of $111.90, its highest since September 2008.
"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.
"People are saying the target is $150, but if we get up there it will come off pretty quickly. I don't think this is a sustainable rally because we're not seeing real demand pick up."
Rebels and forces loyal to embattled leader Muammar Gaddafi exchanged bitter accusations over who had attacked oilfields and infrastructure vital to both sides.
The seven-week old civil war has cut Libya's 1.6 million barrel per day output by 80 percent to between 250,000 and 300,000, a senior government official said.
Fellow OPEC member and 1.9 million bpd producer Nigeria postponed parliamentary elections again in some areas, although polls will go ahead in most of the country Saturday as planned.
"Upcoming elections in Nigeria has already seen an uptick in violence in the oil rich states of Akwa Ibom and Balyesa, with any loss in Nigerian crude (similar in quality to Libya) likely to put further pressure on light-heavy differentials," said Barclays Capital analyst Amrita Sen.
In Syria witnesses said security forces killed at least 10 pro-democracy protestors in Deraa as unrest flared after Friday prayers, a favored time for demonstrations in the Middle East, and dozens of protestors were wounded in clashes in Yemen.
Crude prices rallied in step with gains across the commodities markets, where gold hit a record high, driven by a weaker dollar and positive global outlook despite Portugal's request for a bailout earlier this week. "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."
The surge in oil prices is stoking inflationary concerns for governments worldwide due to the potential adverse impact on economic growth of the rising cost of foodstuffs and raw materials, and the risk of demand destruction.
(Additional reporting by Randy Fabi and Alejandro Barbajosa, editing by Jane Baird)
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