"The crude-oil market remains vulnerable to panic attacks, with prices surging again ... on hypothetical rather than actual supply disruptions," Tim Evans, a senior analyst at IFR Energy Services said in an afternoon research note.

Crude for September delivery traded as high as $45.75 a barrel on the New York Mercantile Exchange, before closing at $45.50 a barrel, up 70 cents, or 1.6 percent for the session. Futures prices have never traded at levels this high and hadn't closed above $45 before.

Elsewhere on Nymex, September unleaded gasoline rose 3.59 cents, or 2.8 percent, to close at $1.297 a gallon, while September heating oil closed up 2.04 cents at $1.191 a gallon.

"A host of major events -- Iraq, Venezuela, Russia, the economy -- could go either way at the moment," said Michael Fitzpatrick, analyst at Fimat USA.

"So the continuing and coming volatility should not be underestimated," he said in a note to clients.

Thousands of U.S. troops and Iraqi soldiers launched a major assault Thursday on the militia loyal to a radical Shiite cleric, Muqtada al-Sadr in Najaf, Iraq, according to CBS News. The U.S. stormed the cleric's house Thursday, but he was not there, witnesses said.

The battle sparked concern that Shiite militants would sabotage oil pipelines and slow or halt oil production in the country in retaliation. See CBS News for more.

Meanwhile, Sunday's presidential recall election in Venezuela, which will decide whether President Hugo Chavez will remain in office, adds another potential threat to oil output from a key producer. The last time there was a major uproar regarding Chavez, striking oil workers cut Venezuelan output to 700,000 barrels per day in January 2003 from the November 2002 level of 3.3 million barrels. See full story.

U.S. supply data issued Wednesday also showed unexpected declines in crude inventories for the week ended Aug. 6. See full story.

In Russia, traders focused on the fate of Russian oil producer Yukos (YUKOY: news, chart, profile), which faces billions of dollars in tax debt.

"It is not known whether Yukos will be allowed to continue operating next month or even next week," said Todd Hultman, president of Dailyfutures.com, a commodity information provider.

In addition, storms in the Gulf of Mexico have shut down oil and gas production, but "production should resume again shortly," he said. At last check, Tropical Storm Bonnie moved onshore near Apalachicola, Florida, and Hurricane Charley is heading for western Cuba and then the southeastern Gulf of Mexico, according to The Weather Channel.

The $50 question

"$45 crude is here to stay. The longtime promise of higher oil is now reality," said Kevin Kerr, a senior trader at Kwest International.

"Iraq is such a disappointment, the promises from the Saudis are so empty ... [and] the store seems to be running out of supplies," he said. Given that, "this market may see $50 sooner than we thought."

But Michael Armbruster, an analyst at Altavest Worldwide Trading argued that the market will likely "see some political maneuvering some time in the near future to coax prices lower," possible even the Bush administration halting additions to the strategic petroleum reserve, he said.

"$50 is too far away for this week," he said.

John Person, head analyst at Infinity Brokerage Services agreed that $50 oil isn't likely this week. But, then again, "if there is trouble in Venezuela, or Iraq that prompts a supply disruption we could certainly be trading closer to ... $47.00 first then $50," he said.

"I believe it would take a supply stoppage of 1.5 million barrels [per day] for ten days or the equivalent of a decline of 15 million barrels [per day] for prices to trade closer to $50," he said.

Comments from Saudi Arabia on Wednesday that it's ready to raise output by 1.3 million barrels per day failed to ease the market's concern that demand will outpace supply and that prices will continue higher. Saudi Arabia produced about 8.4 million barrels per day last year. See full story.

Natural gas continues lower

Natural-gas futures on Nymex closed lower even after a key U.S. report showed that inventories rose a bit less than expected.

September natural gas fell 17.2 cents, or 3.1 percent, to end the session at $5.442 per million British thermal units.

The Energy Department said U.S. natural-gas stocks rose by 72 billion cubic feet for the week ended Aug. 6. Analysts at J.P. Morgan expected a climb of 85 billion.

"The market really wanted a lower number to spark any sort of bullish mood in natural gas," said Agbeli Ameko, a managing partner at Enercast.com, an energy-forecasting firm.

Total stockpiles now stand at 2.452 trillion cubic feet, up 230 billion cubic feet from the year-ago level, and up 117 billion cubic feet from the five-year average, the government data said.

In equities, energy shares were lower, with the Philadelphia Oil Service Index ($OSX: news, chart, profile) leading the decline.

In the Nymex metals pits, gold futures lost more ground, marking a three-session decline.

The Reuters/CRB index, a broad-based measure of commodity futures markets, was narrowly lower at 266.25.

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