Muammar Gaddafi has accused the West of wanting to seize Libya's oil and warned that a no-fly zone would backfire as his forces pounded rebel lines, setting a string of oil facilities ablaze.
The boss of Libya's state oil firm insisted the damage to infrastructure was minor but acknowledged that oil output was down more than two-thirds, as the price for London's main contract jumped $US2.56 to $US115.62.
"The colonialist countries are hatching a plot to humiliate the Libyan people, reduce them to slavery and control the oil," Gaddafi said on state television.
He again accused Al-Qaeda of being behind the insurrection that began on February 15 and called on inhabitants of Benghazi, the rebels' main base, to "liberate" Libya's second city.
His government offered a $US410,000 bounty for the capture of Mustafa Abdel Jalil, head of the rebel national council which declared itself the North African country's sole representative in Benghazi on Saturday.
Strong blasts rocked the rebel-held oil town of Ras Lanuf on Libya's central coast, forcing the insurgents back. A mechanic said a pipeline had been blown up.
An oil installation was also ablaze near As-Sidra 10 kilometres further west although National Oil Corp boss Shukri Ghanem played down its importance.
"Fortunately, the explosion today was in a small storage supply facility in Sidra ... It has not affected the production," Ghanem said, adding: "It was diesel, it's not crude oil."
Scores of rebels packed into dozens of vehicles and retreated into Ras Lanuf after several hours of sustained shelling and at least three air strikes west of the town.
It was the second time in as many days the rebels had been routed in front of the government-held hamlet of Bin Jawad, some 30 kilometres from Ras Lanuf.
Fighting in eastern Libya has killed at least 400 people and wounded 2,000 since February 17, medics there said.
"There have been 400 dead since the beginning in Derna, Baida, Brega, Benghazi, Ras Lanuf and Bin Jawad," Salah Jabar, a medical co-ordinator for cities held by the rebels in the east, told reporters in Benghazi.
In Zawiyah, just west of Tripoli, the battle for control of the strategic oil city was undecided.
"The revolutionaries control the centre of Zawiyah and Gaddafi's forces are surrounding it. It's 50-50," a long-term Moroccan resident said after crossing the border into Tunisia.
"There was no one in the streets, the town is completely deserted, and there are snipers on the roofs," he said, adding that he did not know which side they were on.
Government spokesman Mussa Ibrahim said: "Zawiyah is under the control of the army but there are still pockets of violence. There have been celebrations for hours."
But foreign journalists were unable to verify the government's claims as they were again unable to access the city. A press tour of Zawiyah had been announced but was then cancelled without explanation.
Both sides sent envoys to foreign governments as they stepped up diplomatic offensives amid the increasingly bloody stalemate on the ground.
A member of Gaddafi's inner circle, Major General Abdelrahman al-Zawi, landed in Cairo aboard a private Libyan plane, an airport official said.
Although the purpose of Zawi's visit was not immediately clear, it comes as Arab League foreign ministers prepare to meet at the body's Cairo headquarters at the weekend to discuss a no-fly zone over Libya.
Italian Foreign Minister Franco Frattini said in Rome that Zawi was carrying a letter from Gaddafi to the Arab League in a move that showed "the Libyan regime is moving towards contact" with the international community.
But an official of the 22-member bloc said late Wednesday that Zawi had not delivered his message or made any contact with league chief Amr Mussa.
Elsewhere, a "moderate member" of Gaddafi's regime was en route for Portugal, where he was planning to meet Foreign Minister Luis Amado ahead of a series of key diplomatic meetings in Brussels this week, an EU source said.
A Gaddafi envoy was also headed to Greece.
European lawmakers called on EU leaders to formally recognise the Libyan opposition, after members of the rebel national council came to the Strasbourg parliament seeking legitimacy.
French President Nicolas Sarkozy's office said he would receive envoys from the rebel council and hoped to help it politically.
But EU foreign policy chief Catherine Ashton declined to back the European Parliament's calls to extend recognition, drawing an acknowledgement from Paris of differences within the 27-nation bloc.
"There can be a debate on that," the French presidency said, adding that Ashton "has adopted a position, ours goes much further."
Senior members of President Barack Obama's cabinet met at the White House to discuss options for action, amid pressure from key European and Gulf allies as well as the Republican opposition.
White House spokesman Jay Carney said a no-fly zone over Libya was still on the table but no decision had been taken.
"We are not at a decision point. We are considering these options. We are actively considering a no-fly zone," Carney said.
Oil prices were mixed, with the London market up sharply but the New York benchmark West Texas Intermediate (WTI) for April delivery easing 64 cents a barrel to $US104.38, on higher US crude stockpiles.
Elsewhere in the Middle East, at least 13 people were killed in fighting between Christians and Muslims in Cairo, and fresh clashes broke out between old regime diehards and pro-democracy activists in the Egyptian capital's landmark Tahrir Square.
In Yemen, a night time raid by security forces on protesters in the capital Sanaa in which at least one was killed drew criticism from human rights groups and calls by Washington for an inquiry.
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