News of the strike in Brega, about kilometers (1.2 miles) from a Libyan oil terminal, added to two weeks of fears the unrest could spill over into other large oil producers in the region.
Oil markets remained focused on the turmoil in the Middle East, which could signal another threat to global oil supplies after the Libyan revolt cut exports.
"It looks like an attack fairly close to what is one of Libya's largest storage and export terminals," said Andy Lebow, trader at MF Global in New York.
"It's hard to say if the Libyan government is trying to target oil infrastructure in the east or whether they're just targeting rebel-held areas, but the market's reacting to this threat either way."
Brent crude settled 93 cents higher at $116.35 a barrel, the highest settlement since August 21, 2008, off the session high of $117.81. The Libyan crisis spurred Brent to a 2-1/2 year high near $120 a barrel on February 24.
U.S. crude futures settled at $102.23 a barrel, up $2.60, ending above $100 for the first time since September 2008. U.S. oil also found some support from U.S. Energy Information Administration data showing a drawdown in U.S. oil inventories.
Crude had pared gains in the morning after EIA data showed inventories at the Cushing, Oklahoma, delivery point for the New York Mercantile Exchange's oil futures contract hit a record high.
SPREAD NARROWS
Brent's premium against U.S. crude narrowed to above $14, after touching a record $17.12 on Tuesday. High inventories at the Cushing, Oklahoma delivery point for U.S. crude has kept a lid on U.S. oil price gains this year, sending the spread to a series of all-time highs.
"It seems like the spread gets out there to $16 and then you see some sellers trying to take some profit and the EIA news was a little bit bullish for U.S. crude as well," said Mike Zarembski, senior commodities analyst for optionsXpress in Chicago.
Oil prices hit their highest levels since August 2008 last week on Libya's outages and worries regional production could be hit should similar uprisings develop in other producers in the Middle East and North Africa.
This week, the rebound in oil prices in the wake of violence in Libya has sent other commodity prices rising. Gold reached a record high as buyers looked for safe havens amid political instability.
LIBYAN DISRUPTIONS
In Libya, disruptions at some ports continued, but trade sources said four tankers with at least 2.4 million barrels of crude oil have sailed in the past 24 hours despite mounting violence.
So far, normal output of 1.6 million barrels per day had been cut to 700,000-750,000 bpd as most of the industry's foreign workers had taken flight after the crisis began, according to Shokri Ghanem, head of Libya's National Oil Company.
But prolonged conflict could push crude oil prices above $130 a barrel, Ghanem told Reuters.
Governments in Yemen, Oman, Iran and Iraq have clashed with protesters seeking reforms as popular unrest has spread in the region holding more than 60 percent of the world's oil reserve.
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