UPDATE 10-Oil settles at 2-1/2 yr high on Libya violence

                                
 * Libyan air strike hits near oil terminal
                                
 * Libya's NOC chairman says oil could rise above $130
                                
 * Libyan oil output falls further amid clashes in east
                                
 * EIA data shows Cushing stocks up over 1.1 mln barrels
                                
 (Recasts, updates prices, market activity, adds byline)
                                
 By Gene Ramos
                                
 NEW YORK, March 2 (Reuters) - Oil rose to settle at its
highest level since August 2008 on Wednesday after an airstrike
near Libya's oil infrastructure raised more fears the OPEC
nation's oil sector could become a target in embattled leader
Muammar Gaddafi's efforts to hold power.
                                
 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. [ID:nWEB2959] [ID:nLDE721009]
                                
 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 <LCOc1> settled 93 cents higher at $116.35 a
barrel, the highest settlement since Aug. 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 Feb. 24.
                                
 U.S. crude futures <CLc1> 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. [EIA/S]
                                
 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 <CL-LCO=R> 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. [GOL/]
                                
 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. [ID:nLDE7211L6].
                                
 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. [ID:nSGE72103H]
                                
 But prolonged conflict could push crude oil prices above
$130 a barrel, Ghanem told Reuters.
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 Reuters Insider show on Ghanem interview:
                                
 http://link.reuters.com/jys38r
                                
 Graphics showing:
                                
 Middle East unrest             http://r.reuters.com/nym77r
                                
 Who is in control in Libya     http://r.reuters.com/jem28r
                                
 Map of control in Libya        http://r.reuters.com/fug38r
                                
 Countries most reliant on oil  http://r.reuters.com/dux28r
                                
 Calculator: Oil price impact on GDP
                                
 http://r.reuters.com/jux28r
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 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.
  (Reporting by Robert Gibbons, David Sheppard, Matthew
Robinson in New York; Jessica Donati-Bourne in London; Florence
Tan in Singapore; Editing by Marguerita Choy and David
Gregorio)