Oil prices may rise again on Monday as traders ratchet up the risk premium for crude after Western forces bombed Libya's air defenses in a United Nations-backed intervention against Libyan leader Muammar Gaddafi.

French planes fired the first shots in what is the biggest international military intervention in the Arab world since the 2003 invasion of Iraq, destroying tanks and armored vehicles of Gaddafi's forces in the region of the Libyan rebels' eastern stronghold, Benghazi.

The spreading of Arab unrest to Syria, where thousands demonstrated against the government on Sunday, violence in Bahrain and Yemen and small protests in the world's biggest oil exporter Saudi Arabia all underline the risks for oil markets.

Brent crude, which closed at $113.93 a barrel on Friday, could rise toward a recent two-and-a-half year high of $119.79. U.S. crude, which closed at $101.42 on Friday may also extend last week's 4.2 percent gain, adding to concerns about inflation around the world.

The Middle East and North Africa are a powder keg attached to a slow-burning fuse. The attacks on Libya and naval blockade, the troubles in Bahrain which are causing tension between Saudi Arabia and Iran, could cause the whole thing to blow up, said Jonathan Barratt, managing director of Commodity Broking Services.

The key is really how Saudi and Iran play out. Cool heads need to prevail. It's contained at the moment but if things worsen, you see a Mideast premium very quickly. If they start exchanging fire, it could easily drive the market above the record high.

The current joint offensive by the Western powers in Libya is unlikely to calm down the concerns about the recovery soon of Libyan oil shipments and might support Brent prices again, said Eugen Weinberg, commodities analyst at Commerzbank.

CRUDE UP 20 PERCENT IN 2011

Unrest across the Middle East and North Africa has helped drive up oil prices by around 20 percent so far this year.

So far in March, Brent has risen just 2 percent with gains limited by expectations of lower demand from Japan after the deadly earthquake just over a week ago.

Oil exports from Libya have dried up to almost nil since the rebellion started about a month ago.

JAPAN FEARS, CHINA TIGHTENING

Likely to limit oil's gains was Friday's increase in China's rate reserve requirements and uncertainty about near-term demand from Japan as it comes to terms with the earthquake.

In China, the nation's Vice Premier Li Keqiang said it will stay focused on stifling inflation even as global economic uncertainties multiply.

We will make stabilizing the overall level of prices the primary task of macro-economic adjustment, said Li, who is likely to succeed Wen Jiabao as premier two years from now.

Geopolitical and economic headwinds may undermine industrial raw materials and grains. The recovery in risk appetite on Friday that sent U.S. grain futures soaring may reverse. On the week, nearby CBOT corn futures ended 3.7 percent higher after a 37 cent surge on Friday to $6.83-1/2 a bushel.

Wheat rose 4.0 percent after leaping 12-3/4 cents a bushel to $7.23. May soybeans rose 27-1/4 cents Friday to $13.62-1/2.

London Metal Exchange three-month copper shed $55 Friday to close at $9,510 a tone, but ended the week 3.5 percent firmer.

There is still a lot of worry in the market about demand in Japan and China. The Japan story is getting easier to see and we don't have longer term worries about demand there. China is causing a bit of disquiet. Inflation-busting policy moves could depress consumption, said a Singapore based trading source.

Japan China Iraq Libya